Make no mistake. A cyber-economic war is already underway. Recent revelations of Russian hacking should not come as any surprise as we have covered these risks for years. It is interesting, however, to note that the current Administration is pushing a narrative that "Russia Hacked the election," while offering very scant evidence. This was recognized by Matt Taibbi of Rolling Stone who wrote:
Nearly a decade and a half after the Iraq-WMD faceplant, the American press is again asked to co-sign a dubious intelligence assessment
December 30, 2016 by Matt Taibbi
In an extraordinary development Thursday, the Obama administration announced a series of sanctions against Russia. Thirty-five Russian nationals will be expelled from the country. President Obama issued a terse statement seeming to blame Russia for the hack of the Democratic National Committee emails.
"These data theft and disclosure activities could only have been directed by the highest levels of the Russian government," he wrote.
Russia at first pledged, darkly, to retaliate, then backed off. The Russian press today is even reporting that Vladimir Putin is inviting "the children of American diplomats" to "visit the Christmas tree in the Kremlin," as characteristically loathsome/menacing/sarcastic a Putin response as you'll find.
This dramatic story puts the news media in a jackpot. Absent independent verification, reporters will have to rely upon the secret assessments of intelligence agencies to cover the story at all.
Many reporters I know are quietly freaking out about having to go through that again. We all remember the WMD fiasco.
"It's déjà vu all over again" is how one friend put it.
You can see awkwardness reflected in the headlines that flew around the Internet Thursday. Some news agencies seemed split on whether to unequivocally declare that Russian hacking took place, or whether to hedge bets and put it all on the government to make that declaration, using "Obama says" formulations.
The New York Times was more aggressive, writing flatly, "Obama Strikes Back at Russia for Election Hacking." It backed up its story with a link to a joint FBI/Homeland Security report that details how Russian civilian and military intelligence services (termed "RIS" in the report) twice breached the defenses of "a U.S. political party," presumably the Democrats.
This report is long on jargon but short on specifics. More than half of it is just a list of suggestions for preventive measures.
At one point we learn that the code name the U.S. intelligence community has given to Russian cyber shenanigans is GRIZZLY STEPPE, a sexy enough detail.
But we don't learn much at all about what led our government to determine a) that these hacks were directed by the Russian government, or b) they were undertaken with the aim of influencing the election, and in particular to help elect Donald Trump.
The problem with this story is that, like the Iraq-WMD mess, it takes place in the middle of a highly politicized environment during which the motives of all the relevant actors are suspect. Nothing quite adds up.
If the American security agencies had smoking-gun evidence that the Russians had an organized campaign to derail the U.S. presidential election and deliver the White House to Trump, then expelling a few dozen diplomats after the election seems like an oddly weak and ill-timed response. Voices in both parties are saying this now . . .
Of course, we covered much of this in our last post. It is good to see Matt Taibbi covering it, as this should not be a partisan issue. My guess is that Taibbi would have sided with Clinton over Trump. But we know Taibbi to be an honest reporter regardless of any political or cultural preferences. He was among the very few who reported on the stock market "hack" (using naked short selling) that took place in 2008, ultimately triggering an electoral response that even VP Joe Biden admits likely put Obama into office.
Now, let's be careful to stipulate that the conclusions of a Russian hack of the DNC are likely true. The stretch in our view is that these efforts were furthered by exposing Clinton exclusively to aid Trump. We have not seen any evidence that Russians were the leakers who made the hacked info public. Wikileaks has gone to great lengths to deny that.
The media running with the story seems all too eager to allow a narrative that has led many Americans to believe that Russia actually hacked voting machines. We know this to be false. Or, if there was hacking in the swing-sate of Michigan, for example, the fraudulent votes were cast for Clinton, not Trump.
We do know there was some hacking underway. But this appears to have been undertaken by the U.S. Department of Homeland Security into the Georgia election system. That is very strange but appears very well documented. In fact, the publicly released support for that appears far more substantial than the Russian hacking proof. So, we can state that a State-sponsored hacking attempt does appear to have taken place in a swing state. But the perpetrator in this case appears to be the United States Government and not Russia. Of course, we don't know the whole story in either case. And that's the point. There is truth here but intelligence of this importance should not be politicized, especially when the facts are not in evidence.
One of our big concerns remains that we are in a genuine cyber-economic war but this fact has been hijacked by a political narrative. We are very hopeful that the incoming Administration will understand this and change the climate. Politicized narratives can prove very costly.
As we enter a New Year, our hope is that we face reality and begin addressing the very serious threats underway. To support that effort, we have offered our support for the incoming Administration just as we offered the Obama Pentagon in early 2009. While we were allowed to complete our initial study, it was later squelched for political reasons.
Fortunately, we know a number of the great people supporting President-elect Trump. Several of them read this Blog. Therefore, we offer a list of Ten of the Top Economic Warfare Risks for 2017 for their consideration (offered in no particular order).
Risk #1: A Trade War with China
President-elect Trump's plan to name Dr. Peter Navarro to head his new National Trade Council is a signal that he plans to get tough with China. The Chinese are well aware and just fired a warning shot in response. As a reminder, I was among a select group of co-authors for a book on China along with Dr. Navarro.
The critical point is that we should expect some level of confrontation with China. Wall Street should know this as Carl Icahn essentially said to CNBC that if such a trade war is inevitable, we should probably deal with it sooner rather than later:
"If you have a trade war with China, by definition, I remember the days something like that would really knock the hell out of the market, but maybe if you're going to do it, you should get it over with, right? So that's a consideration, you have to just make up your mind, if that's what you're going to do, you go do it," Icahn said.
There are deep short-term and long-term implications. For one, China may be under intense economic pressure. A trade war could expose a lot of trouble there. It will also damage the part of Wall Street that has seemed to be dedicated to making money by promoting China.
Risk #2: An Ever-Escalating Cyber War
We know the DNC was hacked. We also can be pretty certain that Secretary Clinton's private server was hacked as well. Now, we are hearing that Russian interests penetrated a utility laptop with potential access to our electric grid. Because this information now matches the Russian hacking narrative, it made sensational headlines. But we have been warning about risks to the electric grid for may years. And the electric grid is just one of many points of vulnerability. We know that Iran, for example, has gone after every level of our infrastructure.
Less discussed are the threats to data and information or other critical systems. We (falsely) take for granted that a "hack" of Yahoo can be resolved by changing passwords. Or, a ransomware attack resolved by paying the ransom. Ransomware incidents increased 6,000% this past year. The Yahoo hack impacted more than 1 billion accounts. But in the event of true cyber warfare, the stakes can and will be much higher. We expect a cyber attack test early in the new Administration.
Risk #3: The War on Cash Creates Chaos and Upends Personal Freedoms
What has happened in India is just the beginning of a global power grab. Under the guise of countering terrorism finance, elitists are working to make cash illegal. Already, you have to show an ID just to put cash into your own account. This effort has accelerated under negative interest rate policies but will increase regardless for the foreseeable future.
While the topic deserves several blog posts on its own, we can summarize. There is an effort to digitize all transactions. That means they will be monitored and can be controlled. In the case of terrorism or drug trafficking, that sounds like a good deal. But a government willing to control how large a soda you can buy might just use this power to control all other aspects of our lives. Economic slavery seems a possible outcome. And then, of course, there are the risks of hacking and other manipulations.
Risk #4: Currency Manipulations
There are really two risks here. The first is a competitive devaluations designed to make the nations with the strongest currency non competitive and to suffer under deflation. This ultimately can collapse into global depression. We are already seeing a heavy currency impact on American exporters, spiking our trade deficit. Make no mistake, some of this activity is purposeful economic warfare.
We know the dollar can be manipulated. In fact, Goldman Sachs just paid a big fine for doing so. And, we know that High Frequency Trading of currencies poses other risks. The entire global payments system has been under hacking attack.
So, there is a risk of a too strong dollar. There is also the risk of de-dollarization. The third risk is that the system itself collapses. We know that the current monetary system is long in the tooth. With drastic changes around the world like BREXIT and populist resurgence as with the election of Donald Trump, people are clearly demanding change. An upheaval in the monetary system is inevitable. It could happen at some point in the new year. World War 3 may be about currencies.
Risk #5: North Korea or Other Flips Over the Monopoly Board
Remember playing board games as a kid? Every once in a while, a sore loser would dump the board. North Korea has been on the defensive for quite some time. We have imposed sanctions. They have built and tested nuclear weapons. They have also been known to counterfeit dollars, hack our systems, and launch satellites that just might carry EMP weaponry. In short, they have all the incentive and now the capability of dumping the global economic board.
Conventional wisdom suggests that China would actively prevent North Korea from doing something stupid. But don't forget that China faces difficulties and may be called out on their own economic warfare. As a result, we cannot rule out a North Korean response. They are telling us that it is coming. We should be prepared.
Risk #6: The War on Free Thought and Free Speech
We see two related risks here. First, the ICANN giveaway could result in a foreign coup of the independent board that regulates domain names. We know foreign governments were eager for that to happen. This the control transfer has already occurred, we must be vigilant.
The second risk is this whole "fake news" meme. Certainly there was a large amount of false information propagated on the Internet. But the response has been to demand strict controls. Facebook and others have proclaimed that they will judge content and determine its accuracy on our behalf. The problem is that the "fact checkers" are almost exclusively liberal. Those who control the information we receive will soon after attempt to control everything.
Of course, there is also the serious risk of foreign information manipulation. This is the beginning of a new global war for what we think and believe.
Risk #7: A Continuing Arab Spring and Resultant Oil Wars
The Middle East is in turmoil. It appears that Saudi Arabia lost the oil war gambit. Now, the so-called allies in the region appear to be at risk to further uprisings. The battle between Sunni and Shia will no doubt continue. as will the battle between extremists and those who want to modernize. The global energy supply could well be collateral damage. This would prove extremely disruptive to the global economy.
Risk #8: Grid Failure from EMP, Cyber, or Solar Storm
This is an ever-present risk, at least until we properly protect our electric grid. Whether natural or man-made, a grid failure would devastate our nation and the global economy. Fortunately, the Obama team did recognize the risks of space weather events and began the process of addressing them. It is imperative that these efforts continue and expand to include EMP, Space War, and cyber threats to the power grid. The EMP Task Force is a great place to start.
Risk #9: Stock Market Crash
With the Dow near 20,000, the risks of a stock market crash are greater than ever before. Of course, just as with a grid failure the market could crash from natural causes or purposed manipulation. The manipulation could by cyber, High-Frequency Trading, or other subversion. We have covered this risk from multiple angles and will continue to monitor activity in the New Year.
Risk #10: Continued Undermining of our Technology and Intellectual Property
Beyond the direct and obvious attacks, there is the risk of technology manipulation that steals our technology and intellectual property. We already know that the once respected IBM ThinkPads were purchased by China's Lenovo. Now, the Pentagon warns that these computers may pose a spying threat. Same for toasters and other household appliances. And, of course your cell phone.
The problem is that our society has become technology dependent just as we learn we can't trust our technology. In the case of wide-scale IP theft, the problem is even more serious. The prime culprit? China, of course. Which brings us full circle back to the risk of a trade war with China.
There are no doubt other economic warfare risks. These are those that are top of mind. Please understand that we are optimistic. The incoming Administration seems to be receptive regarding our concerns and we will do whatever necessary to educate, inform, and support a solid response. But we must remain vigilant with eyes wide open.
Ultimately, our trust is in God. I am a follower of the Lord Jesus Christ and believe that He is our ultimate hope. We count on the power and presence of His Holy Spirit and the demonstration of His love for all. This is the good news.
"For God so loved the world, that he gave his only begotten Son, that
whosoever believeth in him should not perish, but have everlasting life."
John 3:16 (KJV)
Happy New Year!