Good morning. Here’s your Daily SITREP for Tuesday, 03 October 2023.
- READ TIME: 6 Minutes, 38 Seconds
- Inside the Beltway
- (1) Biden Iran Envoy Ran High-Level Spy Ring on The Hill
- (2) IRS Contractor Stole Billionaires’ Tax Info
- (3) Biden Ukraine Support on Shaky Ground
- (4) Gaetz to McCarthy: You’re Fired
- Domestic INTSUM
- (5) U.S. Consumers Spending Big, Ill-Prepared For Recession
- (6) Low Interest Rates And Inflation Are History
- Global SITREP
- (7) Fink: More Global Fear Now than Any Time in My Career
- (8) United Nations Approves Kenyan Security Force for Haiti
- (9) Slovakia President Asks Populist Robert Fico to Form New Government
- (10) Taiwan Companies Helping Huawei Build Secret Chip Plants
INSIDE THE BELTWAY
- (1) BIDEN IRAN ENVOY RAN HIGH-LEVEL SPY RING ON THE HILL: According to a series of emails between Iranian diplomats and analysts, the Iranian government used the Iran Experts Initiative (IEI) and former Biden Iran Envoy Robert Malley to infiltrate influence agent Ariane Tabatabai into sensitive positions in the State and Defense Departments.
- Malley used the International Crisis Group think-tank to recruit, organize, and credential multiple U.S. academics who were subsequently funded and supported by Islamic Revolutionary Guard Corps (IRGC) official Mostafa Zahrani.
- The influence agents working at the International Crisis Group were instrumental in the Joint Comprehensive Plan of Action (JCPOA) and the Iran nuclear deal during the Obama administration.
- Why It Matters: This influence operation, intended to influence U.S. policy to be favorable to Iran, has infiltrated and influenced U.S. foreign policy and defense officials since at least 2014. Malley himself has been influential on U.S. foreign policy since the Clinton administration, and the handling of Malley’s suspension has the appearance of a cover-up. – R.C.
- (2) IRS CONTRACTOR STOLE BILLIONAIRES’ TAX INFO: Charles Littlejohn, a consultant who worked for the Internal Revenue Service (IRS) from 2018 to 2020, has been indicted for unlawfully disclosing stolen tax returns of wealthy Americans, including an unnamed public official dating back at least 15 years.
- Citadel manager Ken Griffin filed a civil suit against the IRS, saying he was grateful for the Department of Justice’s persistent investigation. The DOJ filed a motion to dismiss his suit.
- Why It Matters: This is an example of radical individuals gaining government employment to then use privileged information for political purposes. The indictment of Littlejohn doesn’t identify the media outlet he provided the stolen tax information, but ProPublica reported on 15 years worth of tax information of wealthy individuals in 2021, the year after Littlejohn’s contract with the IRS ended. – R.C.
- (3) BIDEN UKRAINE SUPPORT ON SHAKY GROUND: Pentagon Comptroller Michael McCord told House and Senate leaders that the Department of Defense is running out of funds to replenish U.S. military stocks that have been sent to Ukraine, and only $1.6 billion of the appropriated $25 billion for Ukraine is left.
- Press Secretary Karine Jean-Pierre said the Biden administration will send another package of aid to Ukraine soon to signal continued support, adding that the administration has the funds to continue aid to Ukraine for “a bit longer.”
- According to a leaked State Department Ukraine strategy document, Biden administration officials are concerned the Ukrainian government’s failure to reign in corruption could give ammunition to U.S. lawmakers opposed to funding Ukraine aid and cause Western allies to abandon Ukraine.
- Why It Matters: New Ukraine funding may be dead on arrival due to Republican opposition in the House. House Speaker Kevin McCarthy (R-CA) denied rumors that he made a deal with the White House to vote on $100 billion in additional money to Ukraine later this year, so an additional vote on Ukraine funding may never even see a floor vote. The Biden administration may attempt to use Ukrainian government corruption as an excuse to back off of additional money for Ukraine in the case of a recession early next year. – R.C.
- (4) GAETZ TO MCCARTHY: YOU’RE FIRED: Rep. Matt Gaetz (R-FL) formally announced a Motion to Vacate against House Speaker Kevin McCarthy (R-CA), which will require McCarthy to hold a vote in the next two days.
- McCarthy is asking House Minority Leader Hakeem Jeffries (D-NY) to allow rank-and-file Democrats to vote against the Motion to Vacate.
- Why It Matters: Gaetz’ move against McCarthy is likely to fail. McCarthy going to Democrats to save him from being removed is likely to undermine Republican confidence in the Speaker and will be a boon for Democrats running for reelection in 2024. – R.C.
- (5) U.S. CONSUMERS SPENDING BIG, ILL-PREPARED FOR RECESSION: Americans spent 6% more in August than a year earlier despite a slowing economy, high inflation, and high interest rates on credit cards.
- Consumer spending has shifted to experiences, and this spending is “not a regret-filled, spur-of-the-moment decision. It’s the opposite of that, where I would regret not having done it,” said an analyst at Wells Fargo.
- Why It Matters: High mortgage rates and home prices have shut out more Americans from the housing market, so they’re spending rather than saving for a down payment. Americans’ excess savings are gone, and they’re relying on credit card debt, which recently topped $1 trillion for the first time. Americans carrying credit card debt will be in a tough spot when the recession hits, and their jobs are cut. – H.B.
- (6) LOW INTEREST RATES AND INFLATION ARE HISTORY: The age of low interest rates and inflation that began in 2008 is over, leaving economists and investors uncertain about what’s next, according to a Reuters report.
- “We have moved into a new era here. It’s not going to be a matter of struggling to get the inflation rate higher. It’s going to be working to keep it down,” said a portfolio manager at investment management firm DoubleLine.
- Businesses and consumers have become used to paying nothing for money over the past decade, and the adjustment to a higher-for-longer interest rate environment will be painful.
- Why It Matters: Near-zero interest rates from 2008 until early 2022 diverted capital from productive projects to unprofitable, unsustainable ones. Higher interest rates are reversing this trend, but the process will take time. Inflation and interest rates should remain high throughout the 2020s as the U.S. economy deals with commodity shortages and corrects years of underinvestment in manufacturing, infrastructure, and other needed areas. – H.B.
- (7) FINK: MORE GLOBAL FEAR NOW THAN ANY TIME IN MY CAREER: BlackRock CEO and Chairman Larry Fink said that consumers’ fear is the world’s biggest economic problem.
- “What’s going on in China is a great example of fear,” Fink said, discussing how consumers are saving 35% of their disposable income rather than spending more.
- Political and business leaders need to provide hope to consumers to avoid a global recession, according to Fink.
- Why It Matters: Fink is right about global economic fear, but he failed to discuss why this fear exists. U.S. citizens are fearful and uncertain due to a federal government that seizes greater economic control and forces burdensome regulations onto vital industries like energy producers. When uncertainty is high, people predictably save more money, which is what happened in the U.S. throughout 2020 and is currently happening in China. – H.B.
- (8) UNITED NATIONS APPROVES KENYAN SECURITY FORCE FOR HAITI: The U.N. Security Council approved a multinational armed force led by Kenya to battle Haitian gangs, the first such force in almost 20 years that will be deployed to the island nation.
- The force will be funded for one year with $200 million from the U.S. and private voluntary contributions.
- Kenyan officials said the force would be ready to deploy in two to three months.
- Why It Matters: The U.S. has been desperate to find a competent country to pick up the Haiti peacekeeping mission. The U.N. force’s charter to fight and subdue Haitian gangs made the mission politically dangerous for the United States. Kenya will provide a brown face to a Haitian problem, which may be politically palatable but which may not be suitable to actually solve the problems in Haiti. Expect difficulties with this mission and the potential for a U.S. adversary to step into the breach to fulfill the U.N. mandate for Haiti. – M.M.
- (9) SLOVAKIA PRESIDENT ASKS POPULIST ROBERT FICO TO FORM NEW GOVERNMENT: Slovakia’s president asked the newly elected populist Robert Fico to form a government following the country’s parliamentary elections over the weekend.
- Fico had pledged to cut off all military aid to Ukraine and halt participation in the West’s anti-Russian sanctions.
- Fico campaigned on an anti-U.S. message and repeatedly attacked Slovakia’s liberal president for being an American agent serving foreign interests.
- Why It Matters: Slovakia is likely the latest country bordering Ukraine to throw in the towel on the West’s proxy war with Russia. Many pro-E.U. critics of Fico fear that his return to power will move Slovakia to align with Hungary – another E.U. member state that has moved away from supporting Ukraine. Of the five nations bordering Ukraine, three, Poland, Hungary, and Slovakia, have publicly promised to halt military aid to Ukraine; one, Moldova, is neutral; the other, Romania, lacks the domestic support and resources to fully commit to the U.S. led liberal rules-based order. – M.M.
- (10) TAIWAN COMPANIES HELPING HUAWEI BUILD SECRET CHIP PLANTS: Taiwan-based companies, including Topco Scientific Company, L&K Engineering, United Integrated Services, and Cica-Huntek Chemical Technology Taiwan Company are helping Huawei Technologies build infrastructure for a network of under-the-radar chip plants across southern China.
- According to the Semiconductor Industry Association, Huawei is setting up a shadow network of chip suppliers using billions of dollars from the Chinese government.
- Why It Matters: The Biden administration’s effort to curtail the Chinese chip industry and tech sector appears to be failing. Huawei released a new phone with an advanced chip, which kicked off a Commerce Department investigation and indicates that U.S. sanctions are not preventing Chinese chip makers from continuing to make advances. The Biden administration’s next move will likely be to shore up the sanctions regime against Chinese chip makers, but future legislation like the CHIPS Act is unlikely to pass. – R.C.
— END REPORT
M.S. indicates analyst commentary from Mike Shelby
M.M. indicates analyst commentary from Max Morton
J.V. indicates analyst commentary from Jared Vaughn
R.C. indicates analyst commentary from Robert Cook
H.B. indicates analyst commentary from Harrison Burge
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