In last week's post, we warned that the scent of the next World War was already in the air. Readers know that we believe the next war will be cyber-economic in nature, at least in the early stages. We have warned for nearly a decade that perhaps the war started in 2008, but we have simply failed to recognize it. From this perspective, and as written in Secret Weapon: How Economic Terrorism Brought Down the U.S. Stock Market and Why It Could Happen Again, we were expecting a "Phase Three." This new phase would represent a simultaneous attack on the dollar, the integrity of the U.S. Treasury, a shock in interest rates, a collapse in bonds, and another possible market crash. Basically. everything we've witnessed in the past week. The Dow fell over 2,000 points on the Dow Jones Industrial Average in the first three trading days of February, more than half of that today, before a late afternoon rebound.
From another perspective, WAR was declared (albeit silently) in the 1990s as Chinese policy toward the U.S. shifted dramatically. In 1999, the Chinese book Unrestricted Warfare was published and explained exactly what was happening although it was (and remains) largely ignored by the West. This view would hold that the 9/11/01 attack was a part of an initial attack on the West. And, we believe that the financial heart attack that began on 9/11/08 began the next phase. The End Game is designed to permanently take down American leadership, collapse the dollar and removing its reserve currency status. This would effectively bankrupt the Treasury and de-fund our military. We have a tremendous amount of intelligence that demonstrates that this plan has been around for decades.
So, has Phase Three finally arrived? While we cannot rule out the possibility that the Chinese/Russian coalition is making its move now, it is too early to tell. This may be another weapons test, probing to see how we respond. There are a number of critical timing factors at work. First, today was the first day for the new Federal reserve leadership. Markets may be testing Chairman Powell's approach. It is also on the heels of the President's first State of the Union speech. It is also just after the meeting of globalists in Davos, Switzerland. Or, today's drop could simply be a very normal correction after huge market gains. Until we learn otherwise, Occam's Razor would suggest we stick with that.
It is important to understand that IF the Chinese or others had unleashed an economic weapon to wipe out our stock market, most people wouldn't believe it. But such a weapon is certainly feasible and could prove far more devastating than an attack on a major city. And the attack would be difficult to attribute, meaning the potential for a first strike without retribution.
The point is this. Wall Street is inwardly focused, searching desperately for an explanation because the market had been so strong and calm for so long. This is a shock for certain. But we MUST NOT IGNORE the very real signals of looming war. This installment will cover some of the prepatory efforts that have been underway for years but now seem to be accelerating. While they are not a "smoking gun" by any means, they certainly demonstrate a pattern consistent with preparation for World War.
Let's begin with the reality that our Western Financial System is vulnerable. Whether from an exogenous shock or a purposed attack, the absolutely existential nature of finance should be self evident. If the financial markets were gone, we would have no nation left. Simply look to the collapses of history and you will see that nations require a functioning financial system.
Global bigwigs met in Davos, Switzerland recently and produced an pre-meeting report from the World Economic Forum titled Global Risks Report 2018. Here is the relevant section from the actual report:
New technologies add a layer of economic vulnerability to geopolitical disruptions, with emerging risks of asymmetric economic warfare including potential cyberattacks designed to disrupt critical financial infrastructure.
It is striking how sanguine financial markets have remained while political and geopolitical risk has jumped in recent years. Given current market dynamics, it may not be rational for any single market participant to price in rising political and geopolitical tensions. The risk is that we will hit a tipping point at which point everyone prices in these tensions, with a rush to the exits that hits asset prices, strains the resilience of the global financial system and tests whether policymakers retain the firepower to prevent deep and long-lasting impacts on the real economy.
This report is barely a week old (based on extensive interviews and surveys with previous and expected Davos participants over the past several months) and yet we are watching it play out just as written. This could be asymmetric economic warfare using cyber and other means to undermine markets. The resulting panic could produce a tipping point.
This is not news to the Chinese. In fact, they have been preparing for it along with the support of Russia. It is not news to readers of the Blog or our books. We have been at the forefront of warnings for the past decade. But it is news to most Americans and other Western investors, the very ones who will react in panic and also could be hurt the worst.
So what has China been doing? They have been lining up allies. Some are bought off, some are influenced, and some bullied. But they have certainly been pulling together a formidable alliance in case of a financial confrontation with the United States. In addition, the Chinese have made a fervent and concerted effort to compromise political factions in our nation that would clearly divide any attempted response we might prepare. The learned the lesson from our failure in Vietnam. Sometimes what happens on the battlefield matters less than how it is reported to the American people. As a result, a very powerful influence operation has been underway for years, softening our resolve and unity.
The influence operation started with the Clinton Presidency in the late 1990s. It is almost laughable that the media and Democrats today are desperately searching for any hint of Russian influence when they clearly overlooked what China was doing in the mid 1990s. Look it up. People went to jail because the DNC was flooded with serious money from illegal Chinese donations. What did they get in return? Missile technology, supercomputers, Most Favored Nation trade status, and a welcome into the World Trade Organization. It also opened the door for outright Intellectual Property theft:
According to a Wall Street Journal account from Clinton days, a bipartisan congressional inquiry "found Beijing has stolen U.S. design data for nearly all elements needed for a major nuclear attack on the U.S., such as advanced warheads, missiles, and guidance systems. Targets of the spying ranged from an Army anti-tank weapon to nearly all modern fighter jets. Most wasn't done by professionals, but by visitors or front companies. Lax security by the Clinton Administration is blamed in part, and satellite makers Hughes and Loral are criticized."
The IP theft has continued almost unabated. Only occasionally do we catch them in the act. But make no mistake, we have been stolen blind. The cost to Americans has been estimated at $5 trillion…per year!
The Chinese have used this newly appropriated technology to take over our industrial base. They have used it to win friends and influence nations. And they have used it to develop serious military capabilities, in some cases surpassing our own. In fact, one analyst has called China's development of a powerful Rail Gun a "Sputnik moment," reminding us of the day we realized that the USSR was winning the Space race.
China just now is calling America out for starting a new Cold War. The truth, however, is that President Trump is the first President since the fall of the Berlin Wall to understand we are already in a new Cold War and we have been losing. This news greeted CNBC readers over the weekend, before the market's very rough ride today (excerpt below):
China accuses US of ‘Cold War mentality' with new nuclear policy
- China urged the United States to drop its "Cold War mentality" and not misread its military build-up.
- It comes after Washington published a document on Friday outlining plans to expand its nuclear capabilities to deter others.
- The review of U.S. nuclear policy has already riled Russia, which viewed the document as confrontational.
"We hope that the United States will abandon its Cold War mentality, earnestly assume its special disarmament responsibilities, correctly understand China's strategic intentions and objectively view China's national defense and military build-up…," the ministry said in the statement posted on its website.
In other words, "nevermind our military buildup…you be responsible and disarm!" We must not be fooled, however, as noted by the International Business Times recently:
China published more scientific papers than the US in 2016 for the very first time.
Report warns US needs to stay at forefront of science to "mitigate risks" of warfare.By Ewan Palmer January 23, 2018 11:22 GMT
While this topic is not new for us, it is only recently that some serious people are beginning to recognize it. The latest example is noted economist Robert Samuelson.
So, China warns us not to build military capabilities just as they are doing that. Similarly, China warns us not to be protectionist just as they are that. They have been acting as if a trade war were underway while chiding us to be free and open. They have demanded that we back off from Taiwan while they appear to be preparing for an invasion as suggested by their military flight patterns as well as their building landing craft specifically designed for Taiwan.
Just imagine how this might work. What if we had a market meltdown just as there was a Washington debate over the debt ceiling and government shutdown. Then, as we are panicked over a collapsing economy, questioning if we can afford any military expenditure possibly accompanied by a power blackout from EMP, the Chinese invade Taiwan but also offer to fund our debt. Or, to simply promise to not dump their massive Treasury holdings. We know that these type of scenarios have been discussed at length in Beijing.
So how would they get away with any of this? They have conducted an extensive campaign based on Unrestricted Warfare. The strategy has also been labeled The Three Warfares:
China – … Rather than tanks, jets, or cruisers, China's "Three Warfares" relies upon psychological, legal, and media warfare to try to outmaneuver potential adversaries. Unlike Russian or Iranian political warfare, China's version depends heavily upon the existing rules-based liberal world order, as it seeks to bend international opinion and laws to achieve its own ends. This variation of political warfare indicates a clear Chinese desire to resort to military activities only when all other options have been expended.[xv] The Central Military Commission and Chinese Communist Party codified the "Three Warfares" in 2003, and many China experts have pointed to several subsequent disputes in which the Chinese have applied these approaches with varying degrees of success.[xvi] In most of these cases, the aggrieved countries have struggled mightily to decide how best to respond to China's "Three Warfares" given the ambiguity this approach creates from an international perspective.
How have they accomplished this? By infiltrating American higher education. By compromising American business. By buying off some allies and bullying others. China has also developed institutions such as international courts that will be subservient to Chinese demands. And all of this is very strategic. A great example is China's mystery purchase of JD Powers and Associates, the well-known ratings firm. They have also compromised our IT Supply Chain.
This is all very real and extremely well documented. But we have been conditioned to ignore it. The good news? The President's National Security Strategy finally is demonstrating awareness and a plan to respond. No wonder the Chinese are starting to threaten us overtly (as noted in these headlines):
And, here is the proof that the Administration is recognizing all we have been saying:
Kristina Wong Breitbart 16 Dec 2017
The Trump administration's upcoming National Security Strategy — a document required by Congress — will be the first one to have a deep focus on economic competitiveness, particularly with China, according to a source familiar with it.
Towards that end, the NSS is expected to be actionable, in terms of recommending certain economic trade laws be reformed, the source told Breitbart News on Friday. The NSS is expected to be released on Monday.
In the Trump administration's view, the United States' greatest weapon is a strong and sustainable gross domestic product (GDP).
Along those lines, the NSS is expected to have a heavy focus on reciprocal and fair trade, economic strength, economic competitiveness, and economic warfare directed towards the U.S.
President Trump made American economic competitiveness with China a key campaign issue. The administration has made it a key focus, at the same time attempting to work with China to denuclearize North Korea.
National Security Adviser H.R. McMaster earlier this week at an event in Washington provided a preview of the NSS, outlining the four core pillars: Protecting the homeland, advancing U.S. prosperity, peace through strength, and advancing U.S. influence.
He also outlined the nation's five major threats: revisionist powers like China and Russia, rogue states like Iran and North Korea, and transnational terrorist groups.
Bottom Line? We are feeling the Winds of War. In our next post we will delve into how far this might go. For now, we should start preparation.