Michael Wolff Busted Faking Earpiece Malfunction During Question About Trump Affair

Weeks after author Michael Wolff was kicked off of MSNBC’s Morning Joe for deflecting questions about a claim over an alleged extramarital affair in his anti-Trump book Fire and Fury, the wacky author faked an earpiece malfunction on Australian television when asked about the exact same claim. 

Wolff wrote a book full of salacious claims about the Trump White House after former advisor Steve Bannon reportedly let him in 

You said during a TV interview last month that you are absolutely sure that Donald Trump is currently having an affair, while President, behind the back of the First Lady. I repeat, you said you were absolutely sure,” asked host Ben Fordham on Today.

Despite having zero technical issues prior to that question, Wolff begins to insist that he can’t hear the host – fiddling with his earpiece.

FORDHAM: “You said during a TV interview last month that you are absolutely sure that Donald Trump is currently having an affair, while President, behind the back of the First Lady. I repeat, you said you were absolutely sure.”

WOLFF: “Hold on, I can’t–”

FORDHAM: “Last week, you backflipped and said, ‘I do not know if the President is having an affair.’ Do you owe the President and the First Lady an apology, Mr Wolff?”

WOLFF: “I can’t hear you. Hello?”

FORDHAM: “Just last month you said you were absolutely sure that the President was having an affair, and now you say he is not.”

WOLFF: “I’m not getting anything.”

FORDHAM: “You are not hearing me, Mr. Wolff? Mr. Wolff was hearing me before, but he’s not hearing me anymore. So the interview may be over.”

 

Following Wolff’s “technical difficulties,” Fordham released the audio of what Wolff was hearing in his earpiece when he appears to fake the malfunction:

On February 1st, MSNBC’s resident Trump-hating host, Mika Brzezinski, kicked Wolff off the air after he denied suggesting Trump was having an affair with U.N. Ambassador Nikki Haley.

Wolff all but confirmed the rumor from his book in a January interview with Bill Maher. Via Vanity Fair: 

During an appearance on Real Time with Bill Maher Friday, Wolff said that he’s “absolutely sure” Donald Trump is currently having an extramarital affair with someone inside the White House.

When Maher asked Wolff to tell him “something that the other people have not noticed in this book,” Wolff said, “There is something in the book that I was absolutely sure of, but it was so incendiary that I just didn’t have the ultimate proof.” He then elaborated: “Well, I didn’t have the blue dress.”

Maher asked if Wolff was talking about somebody Trump is “f—ing now,” and Wolff nodded. “It is,” he said. “You just have to read between the lines. It’s toward the end of the book. . .You’ll know it. Now that I’ve told you, when you hit that paragraph, you’re gonna say, ‘Bingo.’”

Between the FBI using the Clinton-funded “pissgate” dossier to spy on Carter Page and Wolff’s salacious claims that he now refuses to substantiate on live TV, it seems that the all-out assault on President Trump is, like Hillary Clinton’s campaign, becoming a complete failure. 

via Zero Hedge http://ift.tt/2GM4jZy Tyler Durden

Are You A Russian Troll?

Authored by A Burton Hinkle via Reason.com,

The federal indictments special counsel Robert Mueller handed down a few days ago confirmed that Russian agents did, indeed, use social media to interfere with the 2016 presidential election – and, even more than that, to sow political animosity, heighten divisions, and pit Americans against one another. Several workers at a Russian “troll farm” have now confirmed the thrust of the indictment.

As Deputy Attorney General Rod Rosenstein said when the indictments were announced, “the Russian conspirators want to promote discord in the United States and undermine public confidence in democracy. We must not allow them to succeed.”

Absolutely right. But how to stop them?

Lyudmilla Savchuk – a worker at the troll farm – has explained how Russian agents take pains to hide their true identity: “The most important principle of the work is to have an account like a real person. They create real characters, choosing a gender, a name, a place of living and an occupation. Therefore, it’s hard to tell that the account was made for the propaganda.”

That ability to blend in with online communities raises several troubling questions, the most disturbing of which might be: What if YOU are a Russian troll who sows animosity, heightens division, and pits Americans against one another—and you don’t even know it?

The following quiz has been developed to help answer that very question. Let’s play!

(1) When you see a post online that supports your political tribe, you

(a) treat it skeptically until its assertions can be independently confirmed;

(b) nod sagely and move on;

(c) pause to enjoy the sweet, sweet dopamine hit that comes from having your existing beliefs confirmed; or

(d) immediately share it with everybody you can think of.

(2) When you read something that makes you mad, you

(a) pause to consider the possibility that the author is right and you are wrong;

(b) forget it and move on;

(c) stop reading immediately to avoid being exposed to ideas you dislike; or

(d) leave a comment pointing out that the author is a despicable excuse for a human being who should die a slow and wretched death.

(3) Terms such as “libtard” and “rethuglican” are

(a) demeaning insults that inhibit the open exchange of ideas and prevent learning from others;

(b) kind of juvenile;

(c) pretty witty, actually;

(d) literally true.

(4) An article about a person of the opposing political tribe who has said or done something really stupid and embarrassing is

(a) nothing but partisan clickbait;

(b) not surprising;

(c) further proof that all members of the opposing tribe are stupid;

(d) going up on your social-media account in 3… 2….

(5) A politician of your own political tribe has just done something really stupid and embarrassing. You

(a) find this dismaying, and say so;

(b) explain why it’s not so bad;

(c) attack the opposing tribe for being jerks and making a big fat deal out of it;

(d) point out that it’s not half as bad as all the stupid, embarrassing things members of the opposing tribe have done.

(5) As a member in good standing of your political tribe, you have always believed X. The leader of your political tribe has just come out against X. You

(a) call him or her to account for abandoning your tribe’s principles;

(b) try not to notice;

(c) change your mind about X;

(d) change your mind about X and attempt to excommunicate any member of your political tribe who still has the audacity to think X is even defensible.

(6) People who disagree with you deserve

(a) an honest hearing;

(b) pity;

(c) scorn;

(d) to burn in hell for all eternity.

(7) Online memes are

(a) superficial and usually inaccurate characterizations of the opposing tribe’s views;

(b) occasionally sharp critiques of the tensions inherent in any belief system;

(c) hilarious;

(d) stupid if they’re about your side and brilliant if they’re about the other side.

*  *  *

SCORING:

Give yourself one point for each (a), two points for each (b), three points for each (c), and four points for each (d).

7-10 points: America. Love it or leave it.

11-15 points: Both sides were equally to blame for the Cold War.

16-20: Hey, who doesn’t get goosebumps listening to the Song of the Volga Boatmen?

21+: You live under a bridge and eat Vladimir Putin’s table scraps.

via Zero Hedge http://ift.tt/2GM0ljC Tyler Durden

CDC Official Who Handled Zika, Ebola Outbreaks Mysteriously Disappears Without A Trace

A Harvard-trained CDC official has been missing since February 12 after leaving work midway through the day due to an illness, prompting his friends and family to sound the alarm and issue a $10,000 reward for information leading to an arrest and indictment in the event of malfeasance.

Terrell Cunningham, 60, said his son’s supervisor told him that Commander Cunningham had reported for work but that he had left midday because he wasn’t feeling well. –NYT

The family of Timothy J. Cunningham, 35, grew concerned after the Harvard-trained epidemiologist and US Navy officer wouldn’t answer texts or calls. Driving over 600 miles from Maryland to Atlanta, Cunningham’s parents gained access to his house where they found their son’s phone, wallet and driver’s license.

Quoted by the NYT, his father said that Commander Cunningham had “a lot going on” personally and professionally, and his most recent conversation with his son had left him worried.

The tone, and the numerous exchanges gave us reason to be concerned about Tim,” Terrell Cunningham said. “And I don’t know if it’s an instinct you have because it’s your child, but it was not a normal conversation and I was not comfortable.”

Cunningham’s car was parked in the garage, while his dog – Mr. Bojangles, aka Bo, was left all by himself. 

“Tim never leaves Bo unattended,” Terrell Cunningham told NBC News. “He just doesn’t do it.”

“None of this makes sense,” Timothy’s brother Anterio told Atlanta Fox affiliate WAGA-TV. “He wouldn’t just evaporate like this and leave his dog alone and have our mother wondering and worrying like this. He wouldn’t.”

“I feel like I’m in a horrible Black Mirror episode,” Cunningham’s sister Tiara told the New York Times. “I’m kind of lost without him, to be quite honest.”

Tiara was the last family member to speak with Timothy Cunningham before his disappearance – who said the last time they spoke her brother “sounded not like himself.” When she texted him a bit later, she didn’t get a response – nor did the rest of the Cunningham family.

Police investigating the disappearance have not turned up any leads, however they have found no evidence of foul play. “As of today we have been unable to locate Mr. Cunningham and we are seeking the assistance of the public with this case,” Officer Donald T. Hannah of the Atlanta Police Department said in an email to The Times on Saturday.

Cunningham – who was promoted to commander in the US Public Health Service last July, had worked on the government’s response to both Zika and Ebola outbreaks. With two degrees from Harvard’s School of Public Health, he had been named one of The Atlanta Business Chronicle’s “40 under 40” award winners.

via Zero Hedge http://ift.tt/2ouMdEN Tyler Durden

Averting The US-Russia Warpath

Authored by James Miller, Richard Fontaine, and Alexander Velez-Green via The Strategic Culture Foundation,

For nearly twenty years following the end of the Cold War, military confrontation between the United States and the Russian Federation seemed implausible. Even during periods of tension, as during the Kosovo crisis in the late 1990s, few believed that disagreement between Washington and Moscow could lead to a serious crisis, no less war. Before the first decade of the new century had passed, however, Russian officials were accusing the United States of working to isolate Russia. Such apprehensions have mounted steadily in Russia in the years since.

At the same time, Russian behavior, including interventions in Ukraine and Syria, military posturing and harassment in Europe, and interference in Western elections, has led many in the United States to conclude that, while a U.S.-Russian conflict is by no means inevitable, the risk of such a confrontation is growing.

Even as U.S.-Russian tensions have risen, fundamental shifts in the military-technological environment threaten to erode strategic stability between the two nations. In the coming years, both sides’ extensive dependence on information technology, coupled with likely perceptions of lower risk for the use of “nonkinetic” and nonlethal attacks, are creating new incentives to use cyber and/or counterspace weapons early in a crisis or conflict. At the same time, the advent of novel cyber, counterspace, precision-strike, missile-defense and autonomous military systems could cause one or both nations to lose confidence in their nuclear second-strike capabilities—thereby eroding the stability afforded by mutually assured destruction.

The Russian government rates the United States and NATO as the most serious threats to Russian national security. From its standpoint, the United States is intent on remaining the world’s sole hegemon, and, as such, is unwilling to tolerate a strong Russia that enjoys its own sphere of influence. Moscow has spoken out against American and European efforts to encircle the Russian Federation by integrating former Soviet republics into Western institutions like NATO and the European Union. Russian officials further condemn the United States’ purported use of “color revolutions”—or, as Moscow would characterize them, the sponsorship of coups d’état under a guise of democracy promotion—to install proxies in Russia’s “near abroad.” In addition, Russian analysts assert that the United States and NATO are using a variety of political, economic and informational tools to penetrate and disrupt Russian society itself. In response to these perceived threats, Russia has undertaken a major military modernization effort and used more aggressive rhetoric and military operations, economic coercion and inducements, and information operations to counter alleged U.S. and NATO expansionism.

The view from Washington and Europe differs markedly. In the assessment of the United States and NATO, the Kremlin appears intent on restoring a buffer zone of compliant or client states throughout its self-declared “near abroad.” Western officials condemn Russia’s violations of international law and norms by using force against Ukraine, changing borders in Europe through violence, violating arms-control agreements and seeking to undermine Western democratic elections. They are equally concerned by Russian military modernization, which, coupled with intensified military exercises, activities and bellicose rhetoric, is seen as a direct threat to NATO security. The United States and its allies have responded to perceived Russian aggression by strengthening NATO’s deterrent posture, as well as holding increasingly frank discussions about NATO’s central role in defeating a Russian attack.

U.S.-Russian relations in the coming years will take one of three forms: strategic rapprochement, intensified military competition or managed competition. Although a long-term rapprochement cannot be ruled out, and indeed is a valuable (very) long-term goal, striving for such an outcome—or even another attempted “reset” (or “re-reset”)—in the near term would likely lead to quick disappointment. This reality does not eliminate room for the pursuit of common interests on issues such as nuclear nonproliferationcounterterrorism and counternarcotics. Yet both the United States and Russia must act on the understanding that there is a real potential for political disputes to lead to crisis, and for crisis to lead to conflict.

At the same time, Russia’s nuclear forces will, for the foreseeable future, allow it to destroy the United States as a functioning society. Hence, as distasteful as “working with” Russia may seem, the alternative of full-throated confrontation would pose unacceptable and unnecessary risks to the United States. That said, one should not brim over with unbridled optimism. Russian leaders are engaged in continuing efforts to undermine America’s alliances, democratic processes and global role. A change in this strategic approach appears highly unlikely, and as a result U.S.-Russia competition is the likeliest path short of outright confrontation. The challenge, then, is charting a balanced path ahead that recognizes the real competition and potential for conflict, while allowing for prudent cooperation and improvement in the relationship where possible.

THE UNITED States and Russia are each pursuing a range of advanced military technologies in order to bolster their respective conventional military postures in Europe (and in the western Pacific, in the case of the United States). Priority investments for both sides include novel cyber, counterspace, long-range nonnuclear-strike, missile-defense and autonomous weapons systems. Russian strategists writing in Military Thought, the in-house journal of the Russian General Staff, rightly note that these technologies are likely to significantly increase the pace of military engagements. Uncertainty about these systems’ effects will also increase risk of miscalculation or misunderstanding. These factors, both singularly and in interaction with one another, could lead to “slippery slopes” of rapid escalation from crisis to conflict, especially in cyberspace and outer space.

The U.S. and Russian militaries are increasingly dependent on networked information technology (IT), and both have embarked on ambitious offensive cyber programs. Because of the frailty of cyberweapons—once a weapon is revealed in detail, the adversary can fashion effective defenses—there exists a tremendous premium on secrecy regarding both states’ cyber tool kits. As a result, a great deal of uncertainty surrounds each side’s capabilities. Even so, a 2013 Defense Science Board report conveyed a sense of cyberweapons’ potential impact: “The benefits to an attacker using cyber exploits are potentially spectacular.” Similar dynamics obtain in the space domain. The United States relies heavily on vulnerable military satellites for a host of critical military functions. The Russian Federation does so too, but to a far lesser extent. At the same time, both side possess inherent antisatellite (ASAT) capabilities in their ballistic-missile defense interceptors, and are developing other ASAT weapons, such as co-orbital satellites, missiles, directed-energy weapons and cyberattacks.

Five specific factors could lead to rapid and unintended escalation in cyberspace and outer space.

First, the United States and Russia will likely face strong incentives to use cyber and counterspace attacks early in a future crisis or conflict. These capabilities could offer—or be seen to offer—an opportunity to rapidly degrade an adversary’s information systems at the outset of a conflict, conferring a significant advantage to the first mover. Indeed, Russian strategists have been clear in their assessment that seizing the initiative in the information domain will be key to victory in future wars. In addition, Washington and Moscow may perceive the use of cyber and nonkinetic counterspace weapons as less escalatory than that of kinetic weapons, since they can be employed in nonlethal, non-physically-destructive and reversible ways. This assessment is also reflected in Russian doctrinal writings. Russian strategists characterize both ASAT and cyberweapons as optimal tools for deterrence, since they can be used to destroy enemy infrastructure without inflicting heavy civilian casualties. Such a belief could further lower the threshold for early cyber and counterspace attacks.

Second, cyber and counterspace attacks intended to be highly discriminative against military targets may cascade to affect critical infrastructure essential to a broader society and economy (e.g., electrical grids or commercial satellites). If this occurred, an attack intended to be precise and limited to military targets could instead result in the widespread loss of electrical power, water or other essential services, with resulting economic disruption and potential loss of life. The attacked side could feel compelled to respond at least in kind. Alternatively, a tit-for-tat cycle may occur, as one side might believe it could gain coercive advantage by intentionally demonstrating its ability to pose risks to the other side’s critical infrastructure through a combination of cyber, counterspace and perhaps sabotage attacks. Prominent Russian strategists endorse this view, arguing that attacks on socioeconomic targets can frighten an enemy population into abandoning its war effort against Russia. Yet such countervalue strikes could lead to major conflict and even, in an extreme scenario, nuclear war.

Third, attacks intended to target nonnuclear systems (including but not limited to cyber and space attacks) could inadvertently impinge on nuclear systems, and be misread as a much more escalatory move. For instance, some assets in outer space support both conventional and nuclear missions—particularly in the case of the United States—and both theater and strategic missions. In addition, many terrestrial elements of U.S. command, control and communications, as well as long-range strike systems, are dual-use, and there may be co-location of conventional and nuclear systems by one or both sides. Cyber or counterspace attacks on these systems could therefore implicate nuclear systems, raising the potential for inadvertent escalation.

Fourth, to the extent that the attacker’s initial cyber, space and precision-strike attacks were successful in negating a portion of the other side’s military, the attacked side would fear further debilitating attacks, and could worry that it must use or lose its strategic-level attack capabilities, including not only cyber and space, but also long-range strike capabilities. In the extreme, it may feel its conventional capabilities so weakened that it would consider the use of nuclear weapons. By the same token, nuclear forces use IT and space assets for warning and communications. As a result, a cyber or space attack could put nuclear use-or-lose considerations into play early in a crisis.

Russian strategists are especially cognizant of these dynamics and recognize that a drawn-out conflict will likely force both sides up the escalation ladder. To avoid this outcome, a number of Russian military theorists argue for the use of defensive preemptive strikes—especially using nonnuclear capabilities—on enemy military and/or socioeconomic targets. Some suggest that these strikes could degrade adversary power-projection capabilities, such that Russia could avoid being forced into a situation where it had to use or lose its strategic-level assets in the first place. Others say—as previously mentioned—that tailored preemptive strikes could deter aggression by communicating to target policymakers and publics alike that the costs of attacking or escalating a military confrontation with Russia would outweigh the benefits.

Fifth, inadvertent escalation could result from a mis-attributed attack or third-party false-flag operation. Chance errors in a key system, in the midst of crisis, such as an internal fault in a side’s command-and-control system or one induced by natural causes (e.g., a solar flare or an electrical surge), could be construed by one side to be an intentional act by the other. In addition, the diffusion of offensive cyber capabilities could allow smaller powers or nonstate actors to provoke a conflict—for instance, by conducting a “false flag” digital operation designed to trigger a crisis. Alternatively, once a conflict has begun, they could use their own capabilities to expand the scope or scale of the conflict.

The possibility of escalation to large-scale war stemming, even inadvertently, from lower-order conflicts or tensions has long been appreciated in the context of the United States and Russia. The contention here, however, is that technological advances, their integration into military postures and doctrines on both sides, and the often-unanticipated ways in which such integrations may interact are together heightening the possibility of inadvertent, rapid and dramatic escalation in the event of crisis or conflict between the United States and Russia.

STRATEGIC STABILITY between the United States and Russia has long rested on each side’s confidence that it could absorb even an all-out nuclear first strike by the other side and then unleash a devastating nuclear second strike. That confidence, however, is being tested by the deployment of new military systems.

As these capabilities mature, each side is likely to have growing fears that the other side might employ these capabilities (with or without also using nuclear weapons) in a first strike to attempt to negate its nuclear second-strike capabilities, thereby obviating mutually assured destruction.

Cyber weapons could be used against vulnerable nuclear weapons, delivery systems, and command, control and communications (NC3). The potential vulnerability of these systems, particularly as both countries’ offensive cyber capabilities mature, may exacerbate each side’s fears about the vulnerability of its nuclear deterrent to the other side’s potential preemptive attack. For instance, if a cyberattack on NC3 could delay the other side from giving an order to execute a nuclear strike for even thirty minutes, it could potentially negate the other side’s ability to launch its intercontinental ballistic missiles (ICBM) under attack, increasing the risk to such ICBM and narrowing the potential response options for the victim’s leadership. In a future crisis, in which one side believed that the other was able and willing to stage such an attack, it could perceive itself as having extremely little time to make a decision and might employ cyber or other capabilities (e.g. nonnuclear or nuclear weapons) preemptively, or more extensively than otherwise might be the case.

Counterspace attacks also pose serious escalation risks given space systems’ relevance to nuclear operations, especially for the United States. There appears at this time little prospect that either side could substantially impact the other’s second-strike capabilities through counterspace attacks, and unclassified reporting suggests that neither the United States nor Russia has a robust counterspace capability. Moreover, even if it were able to disrupt or destroy key elements of the other side’s space architecture, each side has ground-based radars to support early warning and substantial terrestrial and/or airborne communications to support secure communications. However, as ASAT technologies improve—for instance, with the deployment of space-based interceptors or directed-energy systems—the risk of an adversary using counterspace operations to disable critical NC3 systems, intentionally or otherwise, will grow commensurately.

Long-range nonnuclear weapons could also pose a threat to strategic stability. Neither side has yet deployed conventional-prompt global-strike (CPGS) capabilities—either conventional weapons on long-range ballistic missiles or hypersonic cruise missiles—that could realistically threaten to disarm an opponent’s strategic deterrent or decapitate its NC3. However, nonnuclear precision strike appears likely to become an increasingly severe problem over time, for two reasons. First, there is concern that the launch of a CPGS missile could be mistaken for the launch of a nuclear-tipped missile, leading the side that fears attack to launch nuclear-tipped missiles in response. Second, the United States and Russia could develop and deploy sufficient numbers of highly capable CPGS weapons to imperil the strategic nuclear deterrent of the other side. Many nuclear delivery platforms, such as road- and rail-based ICBM launchers, might readily be destroyed by conventional forces if they could be effectively targeted. Moreover, future CPGS systems, some Russian and other analysts believe, might ultimately be able to destroy even more defended targets, such as hardened ICBM silos. Missile defenses could “mop up” residual second-strike forces, in turn. The counterforce threat posed by a combination of long-range nonnuclear strike and improved missile defenses is a priority concern for Russian (and Chinese) officials.

As with long-range nonnuclear weapons, neither the United States nor Russia has sufficiently capable or extensive missile-defense systems to deny the other side from being able to conduct a devastating nuclear attack, including in a second strike. Three possible future developments in missile defenses could, however, undermine strategic stability. The first is the deployment of large numbers of kinetic-kill or nuclear-tipped interceptors with the sensor capability, burnout velocity and other features required to engage CPGS and SLBM. The second is the deployment of space-based kinetic-kill interceptors. Third is the deployment of directed-energy systems for missile defense, which appear increasingly plausible as advances are made in solid-state lasers. Any of these developments could seriously threaten the viability of a nation’s second-strike capability.

Finally, the advent of autonomous systems and artificial intelligence may allow states to more reliably target adversary SSBNs and mobile ICBMs. Inasmuch as these systems form the backbone of the U.S. and Russia nuclear forces, respectively, such a breakthrough would pose a severe threat to one or both sides’ nuclear deterrents. Ultimately, however, it is very difficult in an unclassified article to assess the plausibility of developments in strategic antisubmarine warfare or the ability to target mobile ICBMs. It is possible that advances in big-data analytics, for example, yield a breakthrough in antisubmarine warfare and/or time-critical targeting of mobile missiles. Even in this case, however, it is one thing to locate a system, for instance in the middle of the Atlantic Ocean or the Siberian forest. It is another thing to be able to deliver a sufficiently destructive and accurate weapon against the targeted system before it is able to fire or conceal itself.

STABILIZING U.S.-Russian relations requires actions along each of these three pathways, conducted in parallel. Shaping and managing the overall relationship is fundamentally important. But whatever the course of U.S.-Russian relations in the future, there will remain a possibility (one, we argue, that is growing over time) of sliding into crisis and even armed conflict. Moreover, if a crisis or conflict does occur, there is a possibility (also growing over time) that escalation to strategic attack could occur. The following recommendations seek to manage these risks by helping shape the ongoing debate regarding U.S.-Russian relations and guide actions affecting U.S. nuclear posture, ballistic-missile defenses, cyber deterrence and space resilience. The recommendations also address the American role in NATO and NATO-Russia relations, both of which are of critical importance to all three pathways.

To safeguard American interests in the face of Russian actions, the Trump administration should begin by articulating a clear policy on Russia, in close coordination with Congress and NATO allies. In the absence of a coherent American approach, Russian leaders are less likely to cooperate on common interests, since Russian advocates of cooperation will wonder whether the United States will reverse itself and make them appear naive. Russian leaders are also less likely to be deterred, as advocates of a more aggressive approach can argue credibly that Russia should take advantage of a window of incoherence in Washington. And of fundamental importance, in the absence of a clear U.S. policy, Russian leaders are more likely to miscalculate how the United States will respond in a crisis—and, if a crisis does occur, be more likely to miscommunicate.

A clear U.S. policy toward Russia should include sanctions in response to Russia’s annexation of Crimea, its continued military intervention in Ukraine, and its meddling in U.S. and European elections. The absence of painful and sustained costs would prompt Putin and his leadership coterie to conclude that they have little to fear from Washington and its allies, as long as there is the thinnest patina of deniability. At the same time, however, the United States should clarify for Moscow what actions it can take (or avoid taking) over a given period of time to achieve relief from sanctions. Unconditional—or poorly conditioned—sanctions would leave Russia with little incentive to alter threatening behavior.

In addition, the United States should respond with military deployments to Russia’s violation of the Intermediate-Range Nuclear Forces (INF) Treaty. This should include strengthening America’s nonnuclear long-range strike capabilities in Europe and supporting its partners’ efforts to do so as well. Washington should also work with NATO allies to continue to improve missile defenses in Europe. It should make clear that EPAA deployment, along with other missile-defense capabilities, will have a role in deterring Russia’s use of missiles in Europe, while reaffirming that EPAA deployments in Romania and Poland will still be unable to engage Russian ICBMs aimed at the United States. The U.S. response to Russia’s INF violation should further include the deployment of a follow-on to the Tomahawk Land Attack Missile–Nuclear (TLAM-N), built with stealth features based on the Long-Range Standoff (LRSO) nuclear cruise missile. This follow-on to TLAM-N would fill a deterrence gap by adding a survivable and credible theater nuclear deterrent that complements dual-capable fighter-bombers (potentially vulnerable both to preemptive attacks on air bases and to advanced air defenses) and dual-capable long-range bombers (the use of which, if in response to theater use of nuclear weapons by Russia, would require the United States to be the first to engage in homeland-to-homeland nuclear strikes).

Finally, the United States should continue to develop areas of cooperation with Russia. Washington will need Russian support for (or abstention on) further U.N. Security Council–imposed sanctions on North Korea, and likely other threats to international peace and security that come before the council in the future. The two might productively cooperate in some areas of the Arctic, in civilian space activities, in diplomatic negotiations over Syria’s future and in the Global Initiative to Combat Nuclear Terrorism, which Russia and the United States cochair. Even as American leaders continue to press a modest, positive agenda, they should put greater priority on deterring bad behavior and avoiding a slide toward crisis and conflict.

THE UNITED States should take additional steps to mitigate the potential for attacks in cyberspace and outer space to trigger rapid, uncontrolled escalation. One of the first steps should be to define its desired rules of the road for cyberspace and outer space, not only in peacetime, but also in crisis and conflict. It should then seek consensus with key allies and partners, with whom a common understanding of preferred guidelines for offensive cyber and outer-space activities remains lacking. Armed with an allied consensus, Washington should test the degree to which arriving at a common view with Moscow (and, likely separately, Beijing) is possible. Even if the United States and Russia fail to reach a common view, well-prepared bilateral discussions regarding rules of the road in cyberspace and outer space would help clarify where various actions might fall on the escalation ladder, thereby reducing the risk that either side unwittingly takes actions viewed by the other as extremely threatening.

Next, following a framework offered in a Defense Science Board Task Force report on cyber deterrence, DOD should bolster cyber and space resilience for critical military capabilities in three ways. First, it should ensure the cyber and space resilience of the nuclear triad, and the “thin line” of NC3 systems that supports it even in a nuclear exchange. Second, the department should ensure the essential cyber and space resilience to support a select but substantial subset of nonnuclear long-range strike capabilities, such as the new B-21 bomber and JASSM-ER and attack submarines equipped with conventional Tomahawk cruise missiles. Having punishing nonnuclear strike options available for response even after withstanding the other side’s best efforts at cyber and space attacks would significantly decrease the incentive to conduct such an attack, without requiring the president to escalate to a nuclear response. Third, DOD should ensure that select offensive cyber (and, if applicable, offensive counterspace) capabilities are highly resistant to both cyber and counterspace attacks, so that the United States may respond in kind to an attack limited to cyberspace and outer space.

The United States should also improve the digital resilience of its critical infrastructure. A focused national effort sustained over a period of many years could fundamentally reduce the cyber vulnerability of at least the most essential U.S. critical infrastructure, including the electrical grid, key elements of the financial sector, water and wastewater systems, and the electoral system. There will be no quick fixes, but with strong leadership from both the public and private sectors, the United States could substantially reduce the digital vulnerabilities of select portions of its critical infrastructure over the next ten to twenty years. By addressing these vulnerabilities, Washington can reduce Russia’s incentives to attack and the potential escalatory impact if it does so.

In addition—and critically—the United States should reopen diplomatic and military lines of communication with Russia. These channels are crucial for reducing the risks of miscommunication and avoidable conflict. Notwithstanding how difficult U.S.-Russian relations are today, the United States should work to reopen channels of communication, including diplomatic as well as military-to-military ones. Some initial steps—for example, tactical deconfliction in Syria—have taken place already, but much more is needed.

JUST AS the integration of a range of new technologies is undermining strategic stability, so too is an integrated program necessary to buttress strategic stability between the United States and Russia in the coming years and decades. This program must consider changes in both nuclear and nonnuclear systems, and in both nuclear and nonnuclear strategies.

As a first step in such a program, the United States should adopt a “triad-plus” strategic force structure. This means proceeding with the Columbia-class strategic submarine modernization program, B-21 dual-capable bomber program, and LRSO missile program. It also means that, rather than pursuing a one-for-one replacement of Minuteman III ICBMs in underground silos, the United States should develop a replacement ICBM that is significantly lighter than the Minuteman III and deploy perhaps two or three hundred of the missiles in silos. The United States should also initiate a mobile ICBM research-and- development program, including prototypes, so that the United States can shift weight to a mobile ICBM force in the event of a Russian breakthrough in antisubmarine warfare (ASW). Remanufacturing a stealthy version of the TLAM-N would also allow the United States to hedge against Russian ASW improvements.

At the same time, the Department of Defense should address vulnerabilities in NC3 systems and review launch-under-attack postures. DOD should invest first in ensuring that its nuclear forces and NC3 are highly resilient to a top-tier cyber adversary. Next, both the U.S. and Russian leadership must understand the reality that their NC3 systems could suffer some degradations in crisis or conflict—some of which may not be due to attacks by the other side; a third party might attempt a false-flag operation. Accidents and acts of nature can also cause service disruptions of some systems. Both sides should ensure that their planning and exercises account for such events. Finally, the U.S. and Russian postures to be prepared to launch ICBMs under attack deserve careful review, so as to minimize the risk of launching on false warning. How both sides can adjust their postures to this effect remains difficult to say. It is important to note, however, that the more the United States hedges through other means (e.g., TLAM-N and mobile ICBMs) in the future, the less pressure there will be to launch ICBMs under the warning of attack.

As the United States proceeds with a program of nuclear modernization, it should also develop and deploy nonnuclear hypersonic weapons, tailored to defeat major improvements in the air-defense systems of potential U.S. adversaries. The United States should aim for a “sweet spot” for nonnuclear hypersonic weapons in terms of military effectiveness (high), cost (relatively low), potential for high-volume strikes (significant) and impact on strategic stability (low). Medium-range ballistic missiles (with and without boost-glide vehicles) and hypersonic cruise missiles, launched from heavy bombers and/or attack submarines, could fall in this sweet spot. The systems would have a low impact on strategic stability because their infrared and other signatures would be substantially different and distinguishable from those of U.S. nuclear-delivery systems (including SLBMs and nuclear-tipped cruise missiles), attacks on one nation would not require overflight of others, and these systems would either lack the range to attack deep into Russia (the case for submarine-based medium-range systems) or would be unable to do so in volume without creating a massive detectable signature (the case for bomber-based systems).

The United States should also invest in its missile-defense architecture. To start, as North Korea improves its nuclear-tipped ICBM capabilities, the United States should continue to grow its missile defenses. Second, the United States should continue to press forward with directed-energy systems for defensive purposes. Priority should be given to helping to deal with the immediate challenge of negating North Korean long-range and medium-range missiles, likely by deploying directed-energy systems on manned or unmanned aircraft. Third, the United States should forswear space-based missile defense interceptors and directed-energy systems, strongly urge Russia to do the same and pursue a bilateral agreement with Russia (and, separately, a bilateral agreement with China) to this end. Because of the massive and immediate threat that such systems would pose to American satellites and their essential support to warfighting—and potentially to early warning and secure communications satellites that are vital to the U.S. nuclear deterrent—any Russian deployment of space-based missile defense interceptors or lasers would pose an immediate and unacceptable threat.

Finally, the United States should regularize strategic-stability talks with Russia and seek to extend the New START treaty by five years. The U.S.-Russian meeting in Finland in September 2017 was an important first step toward a regular Track 1 dialogue on strategic stability issues in the coming years. The American and Russian governments should sustain these sorts of efforts. At the same time, however, in view of the volatility of U.S.-Russian relations at this time, and recognizing that circumstances may delay or derail Track 1 efforts, both parties should pursue Track 2 and Track 1.5 dialogues on strategic stability. Extending New START would serve strategic stability through its verification provisions, which provide transparency and predictability, thereby reducing the propensity of each side to rely on worst-case assessments. It would not currently be helpful to press for further reductions in force levels, as having some extra margin above the bare minimum force levels that each side thinks it needs will help buffer the impact of new military capabilities as they are deployed.

THE UNITED States and Russia have reentered a period of serious tension that shows no sign of abating. Relations between the two sides appear likely to remain tense, if not hostile—at least through the medium term—and may involve considerable turbulence. Bluntly put, serious disagreement and even outright conflict are possible. Exacerbating this geopolitical reality, emerging new military capabilities—cyber, space, missile defense, long-range strike and (cutting through all) autonomous systems—are increasing uncertainties associated with strategic stability. Unless measures are taken to cushion the consequences of these military trends, conflict may become more probable and escalation more dramatic and severe than they need to be—all in an era when both crisis and conflict are more plausible than they were just ten years ago. If adopted by the Trump administration and its successors, a fresh American approach to U.S.-Russian relations will protect American and allied interests. If the U.S. approach is also articulated clearly and is consistent over time, it may well reduce the risk of crisis or conflict arising from Russian miscalculation.

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“We Don’t Belong Here Anymore” – Even Landlords Are Fleeing The Bay Area

Peter Thiel and his band of libertarian-leaning Silicon Valley-types aren’t the only ones scrambling to leave the Bay Area: As we’ve noted time and time again, staggering economic inequality is a daily fact of life in the area surrounding San Francisco – largely because rapidly growing home valuations have left couples earning as much as $500,00 a year feeling like they’re being steadily priced out.

And while we’ve previously covered the exodus of renters to low-cost states like Texas, in a report published Saturday, the East Bay Times explores an even more troubling trend: Landlords are increasingly taking the cue from their tenants and joining in the exodus.

After all, with one in four US homes sold during 2017 going for more than $500,000 above their asking – particularly in hot real-estate markets like San Francisco, where buyers battling for the highest bid have begun relying on clauses that will automatically – and incrementally  – raise their bids until they either emerge victorious,  or reach a predetermined ceiling.

East

For at least the last nine months, the Bay Area has led the country in the number of departing residents, as everybody who isn’t a tech worker – including essential civil servants like police and fire fighters – begins to feel like a secondary servile class. One landlord said several of his tenants asked if they could move with him when he announced he was selling the building and departing for Colorado

Tony Hicks moved to San Jose in 1981, but he’s had enough.

Hicks told his 11 tenants he would soon place the three homes he owns on the market. He expected disappointment. Instead, most wanted to move with him to Colorado.

“It didn’t take them long,” Hicks said. “I was surprised.”

Hicks first bonded with many of his tenants over their shared appreciation for conservative politics in an environment that is openly hostile to views that don’t conform to the dominant neoliberal ideology.

“I’ve been thinking about this for a long time,” said Dan Harvey, 60, a retiree in one of Hicks’ rentals who is concerned about the traffic he fights on his Harley Davidson and the high cost of living. “A fresh start.”

Rising prices, high taxes and his suspicion that the next big earthquake is just a few tremors away convinced the retired engineer to put his South San Jose properties up for sale.

The groundswell to leave Silicon Valley — the place of fortunes, world-changing tech and $2,500 a-month-garage apartments — has been building. For at least the last nine months, the San Francisco metro area has led the nation in the number of residents moving out, according to a survey by online brokerage Redfin.

San Jose real estate agent Sandy Jamison has seen many long-time residents and natives leave the state recently. The lack of available housing, leading to some of the priciest real estate in the country, is driving many from the region, she said.

The landlord and tenants came together through Hick’s rental ads on Craigslist and in the newspaper over the last two decades. They grew close with common bonds of conservative politics, religious faith and motorcycles.

It’s an unlikely collection of 10 men and one woman — a retired engineer, a few military veterans, blue collar workers and others on fixed incomes. Few say they could afford to go it alone in the sky-high housing market in San Jose, where a typical two bedroom rents for about $2,500 a month, far more than what they pay Hicks.

Most of the men are divorced, widowed or never married, and many suffer from health ailments and a crankiness exacerbated by Bay Area traffic, crowding and the state’s liberal policies on crime and immigration.

Hicks, 58, was an engineer and marketing executive at IBM, Xerox and other companies before retiring in his early 40s to raise his daughter from his first marriage.

He bought a few investment properties in South San Jose, and looked for long-term returns when he sold them. He kept rents low — between $500 to $1,200 a month for one bedroom — and never raised prices once a tenant signed a lease.

Many of his tenants have been with him for more than a decade.

“We became brothers,” said Mike Leyva. The 64-year-old Army veteran and retiree signed a lease in 2004 and never left.

 

And Hicks and his compatriots aren’t alone – not by a long shot: A five-county poll conducted for the Silicon Valley Leadership Group and the East Bay Times found that more than one-third of Bay Area apartment renters and one-quarter of residents in their 20s and 30s say they are struggling to afford their housing.

 

Many longtime residents also describe a feeling of alienation that seemed to accompany the tech boom.

According to one real estate agent, the top reasons people leave the Bay Area are as follows: high taxes, cost of living, quality of life from traffic to homelessness, politics and high housing prices. For many long-time residents, she said, “they feel like they don’t belong here any more.”

For Hicks, lofty real estate valuations were the last incentive he needed.

In recent years, Hicks began to believe there was a better life outside the valley.

Vaulting real estate prices added incentive. He kept up on tax laws that could maximize the returns on his property. Selling his San Jose rental houses and buying new properties with the proceeds would allow him to defer taxes. “It’s a great financial move,” he said.

Hicks was also moved by discussions with his pastor and sermons at his church, the Vietnamese Living Word Community Church, about Biblical journeys.  His spiritual beliefs guided him to his decision to move with his new wife, Fidessa, 31, and her 8-year-old daughter.  

Cautiously, he broke the news to his friends.

“I was totally shocked,” Leyva said. “I thought he was joking me. I had a lot of questions about it.”

The tenants who are accompanying Hicks expect to save hundreds of dollars a month in rent when they relocated to Colorado…

QUOTE

Levya spent two days researching the move and became convinced. He expects to slash his rent from $1,200 to about $800 a month, with more room in a newer home bought by Hicks. “I’m excited,” Leyva said. “It’s going to be a new journey in my life.”

Ed Blomgren, 70, pays $495 a month for one bedroom and a shared bathroom. The retired machinist, a Navy veteran, lives on a fixed income and couldn’t afford market-rate rent.

Blomgren grew up in Colorado, and he welcomes a chance to return to his home state, where he still has family. “At my age,” he said, “I think it might be a good thing.”

After he finishes selling off his portfolio of Bay Area propterties, Hicks expects to get a much bigger bang for his buck when he buys a new home in Colorado. The median home value in Colorado Springs is $263,000, compared with $1 million for a single family home in San Jose, according to real estate website Zillow.

Hicks’ plan, as it stands, is to sell all three homes and buy a half-dozen newer, bigger and cheaper homes in the smaller, mountain town that’s home to the US Air Force Academy.

Within a day of listing his Raposa Court home, Hicks had two offers in hand that – like most sales in the area – were well above his $1 million asking price…

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A Key Inflation Indicator To Watch, Part 2

Authored by Daniel Nevins via FFWiley.com,

“Inflation comes from too much money chasing too few goods.”
–Many an economics professor

But does it really?

In Part 1 of this series, I said I would challenge popular beliefs about inflation, while at the same time proposing an alternative theory. I also promised that the theory leads to an inflation indicator with an excellent prediction record, and I’ll define the indicator in this article. Considering inflation determines bull and bear markets in both stocks and bonds, that’s my big pitch.

But first, here’s a recap.

In the last article, I argued we should stop fixating on M2, as economists do, and focus instead on the amount of money banks pump into the economy when they deliver loan proceeds. Bank-created money, which I call “M63,” flows directly into GDP, thanks to the charters that allow banks to produce money from nothing when they make loans or buy securities.

Here’s a chart from the earlier article:

inflation 1

The chart shows bank loans lifting spending above the amount spenders can fund from prior income, which fattens the circular flow, boosting GDP. Bank-funded spending might lift real GDP or inflation, or both, but however it works into the economy, we can find a correlation with nominal GDP. And we can demonstrate the correlation with either loan or money data, as long as we define money as bank-created money (M63), not M2.

God’s A-Gonna Trouble the Water

You might wonder, though, if bank-created money outperforms M2, why do mainstream economists rarely discuss it?

To restate a few more points from Part 1, the answer lies partly in the backstory of the 1960s and 1970s, when the economics gods pulled a bait-and-switch. The gods baited Milton Friedman and Anna Schwartz with ninety-four years of M63 data, and Friedman and Schwartz then analyzed and wrote up the data in their magnum opus, A Monetary History of the United States, 1867-1960. Within ten years, the book was a classic, and Monetarism had become a key building block in mainstream economics. Thanks to M63, Friedman and Schwartz reached their profession’s pinnacle while becoming household names outside of it.

But somewhere along the way, the gods pulled their switch.

Instead of continuing to channel M63, they directed economists toward measures such as M2, which better matched the profession’s long-time fascination with the intrinsic characteristics of money (such as liquidity, stability and value as a medium of exchange). Economists were well-accustomed to treating money as an independent force that’s mostly unrelated to bank lending, and a close look at ninety-four years of history wasn’t powerful enough to break old habits. In fact, most economists were unaware of the differences between the traditional money measures that dominated their discussions and the M63 measure that Friedman and Schwartz studied, and they might still be unaware. Even Friedman and Schwartz gave no indication they considered the differences significant.

To be sure, the bait-and-switch wasn’t a big deal at first, because the various money measures were highly correlated. But the correlations soon weakened, and only M63 retained a strong correlation with economic growth. In other words, up-to-date research reaffirms Friedman and Schwartz’s original conclusions about M63 while refuting the supposed value of M2, adding to the ample evidence that M2 failed as an economic indicator.

Of course, that brief history of Monetarism isn’t well-known, if known at all outside a few small tribes of economics rebels. But the more you delve outside the mainstream, the more obvious it becomes that it’s the only history that matches real events. Spend enough time running with the rebels, and you’ll come to appreciate three facts that mainstreamers typically sweep aside or deny:

  1. Bank charters authorize commercial banks to create money from nothing when they extend loans, making bank lending fundamentally different than other types of lending.

  2. We can measure the amount of money that banks create.

  3. Bank-created money is often uncorrelated with the money measures you hear about in the media, such as M2.

Once you accept those three facts, you only need to look at the connections between the various money measures and the economy (see my article “Learning from the 1980s”) to confirm the case for refocusing on M63. And as noted above, it also helps to know that Friedman and Schwartz produced their seminal research using M63, not M2, for which data didn’t exist over the full period of study. Plot twists like that almost make the history of economic thought entertaining, as if written by Stephen King or M. Night Shyamalan.

There’s a Leak in This Old Economy

Needless to say, M63 feeds into the alternative inflation theory, but it’s not the only input. Let’s complete the theory by adding other inputs, and the next one also drops from the circular flow. It accounts for exports and imports, which I’ve added to the flow in the chart below (leaving out bank loans this time to keep it simple):

inflation 3

The chart shows exports boosting the income accruing to domestic producers (at the bottom), whereas imports have the opposite effect of channeling business to foreigners at domestic producers’ expense (at the top). Pretty basic, right? Maybe not especially interesting? In fact, foreign trade becomes interesting within the circular flow only when exports and imports fail to balance, as in the United States. Because of America’s trade imbalance, her circular flow doesn’t self-replenish, as shown in the next chart:

inflation 4

Notice that domestic income is shrinking with respect to spending, which is the piece I find interesting—that’s what I mean when I say the circular flow doesn’t self-replenish. Or, you can think of the flow springing a leak, whereby purchasing power leaks from the domestic economy with potential consequences for inflation. Before weighing those consequences, though, we need to consider the bigger picture.

In particular, we need to consider how foreigners use the dollars they accumulate when they sell more stuff to us than we sell to them. They have excess dollars they need to invest, thanks to the trade imbalance, but how? Are they investing their dollars directly into our “real” economy, or do those dollars first flow into our “financial” economy? Economists often downplay that difference, noting that the two economies connect, but my experience as an everyday observer, analyst and investor tells me it’s important.

If foreigners use their dollars to build a factory in, say, South Carolina, our real economy gets a boost that neutralizes the circular flow’s leak. But if they only buy stocks and bonds in our financial economy, that shouldn’t provide as much of an offset to the leak. (If you’re used to talking about the velocity of money, another way to make the same argument is to say that the circular flow slows down—meaning lower velocity—when purchasing power has to take a detour through financial markets.)

So which is it?

Well, data show the foreign sector mostly draining dollars from our real economy and then investing them in our financial economy. The real-economy drain (or leak) reduces pricing power and dampens inflation, while financial-economy investments boost asset prices. For this article, we’ll consider only the inflation effect. (I may write later about whether trade imbalances help U.S. stocks trade at higher multiples than other markets, which seems a reasonable secondary conclusion.)

Two Words You’ll Be Hearin’

Essentially, America’s trade deficit is deflationary, and you probably already believed that without me trying to convince you. I’ve supported the case using the charts above to show similarities between foreign trade and bank-created money—namely, both affect inflation by disturbing the circular flow. Once we connect inflation to the circular flow, we can see that

  1. Inflation should rise when purchasing power injected into the spending flow causes it to exceed the amount of domestic income from the prior period. The most common example, which I discussed in Part 1 and recapped above, is a surge in money-creating bank loans.

  2. Inflation should fall when purchasing power leaking from the spending flow causes it to undershoot the amount of prior-period domestic income. The most common example is a trade deficit that redirects the spending flow from domestic to foreign producers, meaning it no longer circles back cleanly and directly to the real economy, as discussed above.

More simply, inflation forecasters should be aware of injections to and leaks from the spending flow. Or even more simply, just think injections and leaks. In my opinion, those two words should appear in the job description of every would-be macroeconomist.

But that’s not all, because I haven’t yet accounted for the supply side, which could expand or contract to absorb the injections and leaks. Depending on the supply side, injections and leaks could have greater effects on real growth than on inflation. We can use a reasonable method for isolating inflation, though—we just compare the spending injections and leaks to real GDP growth, and that approximates whether spending is overshooting or undershooting supply.

All Together Now (Bom Bom Bompa Bom)

So my suggested inflation indicator is easy to calculate – we add M63 growth to the trade balance and then subtract real GDP growth.

M63 growth and the trade balance measure spending injections and leaks (have I mentioned those terms?), whereas real GDP growth tells us about the supply side.

Conceptually, the indicator modifies the saying that inflation comes from too much money chasing too few goods. Instead of fixating on money, we’d like to know whether too much purchasing power is chasing too few goods, or, in the case of disinflation, whether too little purchasing power is chasing too many goods. The difference between money and purchasing power may sound trivial, but consider the following:

  • When Milton Friedman predicted high inflation in the 1980s (see Part 1), he cited strong M2 growth as the reason for his prediction. Had he allowed that purchasing power was leaking from the spending flow as America’s trade deficit soared, he may not have sounded his errant inflation alarm.

  • Also in the 1980s, M2 lost its strong correlation to the amount of purchasing power created by commercial banks. It no longer gave an accurate reading on the amount banks were injecting into the spending flow, and I would say it’s no coincidence that M2 lost its effectiveness as a leading indicator at the same time.

  • Data shows quantitative easing (QE) failing to inject much purchasing power into the spending flow, confounding those who expected the money created through QE to lead to high inflation. (See my article “QE’s Untold Story” for the “argyle chart” that shows how banks responded to QE.)

Clearly, money and purchasing power can be different, and I’m suggesting the better way to understand inflation is to look at purchasing power within the circular flow, not money.

You might think of a tug-of-war between purchasing power, on one hand, and capacity, on the other. The tug-of-war’s outcome depends on the circular flow’s particular pattern, which depends on spending injections and leaks, and that’s the crux of the alternative theory I’m proposing. To my knowledge, you won’t read the same theory in any other blog, book or paper, but that’s not to say it doesn’t build on the history of thought. You can find the theory’s origins in my recently published book, Economics for Independent Thinkers, which covers the circular-flow approach in more detail.

I haven’t yet shown the theory works, though, and I’ll do that in Part 3. As already promised, I’ll show that the circular-flow indicator has an excellent historical record.

 

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Massive Cocaine Bust At Russian Embassy In Buenos Aires

Police in Argentina foiled a plot to smuggle cocaine of “maximum purity” from Argentina to Europe using the Russian embassy’s diplomatic courier service. Five suspects were arrested in the scheme based out of the Russian embassy in Buenos Aires following a year-long sting which enlisted the assistance of a shadowy Russian spy chief. 

Ensnared in the operation were an embassy accountant, an Argentine police officer, two Russian gang members, and a local Russian mechanic who transported the drugs.

Authorities discovered the plot in December 2016 after Russian ambassador Viktor Koronelli stumbled across 860 lbs. (389 kilos) of cocaine zipped inside 12 suitcases in a storage facility belonging to the diplomatic mission. Koronelli immediately informed Argentine authorities – who decided to keep the discovery secret while they set up an elaborate year-long sting.

After removing the cocaine worth roughly $61 million USD, and replacing it with flour, authorities placed tracking devices on the cases and conducted a joint monitoring operation with Russian authorities. 

At 3 am we had to send people from the border police to buy the 389 kilograms of flour to the central market [in Buenos Aires] because no one had 389 kilograms in a warehouse,” said Argentinian security minister, Patricia Bullrich. “The drugs never traveled to Russia. Only the flour traveled.”

The gang then left the dummy narcotics in the warehouse for almost a year, as the retirement of the conspiring embassy accountant had caused them to look for other routes.  But after alternative options fell flat, the network returned to its original plan.

The former accountant, Ali Abyanov, was instructed to request his belongings be returned to Russia using the courier service, and, learning of the move, investigators prepared to pounce.Telegraph

“This has been one of the most complex and extravagant drug-dealing operations that Argentina has faced,” Bullrich said.

The courier in this case was in fact a high level KGB agent named Nikolai Patrushev – the former head of the FSB who is believed to have authorized the 2006 London assassination of a FSB defector Alexander Litvinenko – who died after being poisoned with a lethal dose of polonium-210.

Patrushev paid a visit to the Russian embassy in Buenos Aires in December 2017 under the auspices of a visit to Argentine president Mauricio Macri, where the two signed memorandums of understanding in the Casa Rosada executive mansion.

Russian security services, acting on Patrushev’s orders, arranged for the delivery of the “cocaine” requested by retired Embassy accountant Ali Abyanov to be transported on Patrushev’s plane. Patrushev escorted the flour-filled suitcases to Moscow on December 9. 

Four days later, two Russian gang members – Vladimir Kalmykov and Ishtimir Khudzamov, were arrested when they tried to pick up the suitcases. Abyanov was arrested at the same time. 

The final act of the sting came with the Wednesday arrest of Buenos Aires police officer Ivan Blizniouk, and local mechanic of Russian nationality, Alexander Chikalo – who stands accused of transporting the bags to the airport.

The last piece of the puzzle is an ongoing hunt for the cocaine ring’s alleged leader – known as “Señor K,” a well-connected businessman believed to have been living in Germany for the past several years. Señor K arranged the drug runs under the guise of an alcoholic beverage import-export firm, and is believed to have arranged for two previously successful shipments to Russia through Uruguay. 

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Fed Chair Powell Delivers First Testimony To Congress: Here’s What To Expect

With the assistance of RanSquawk

New Fed Chair Powell to deliver semi-annual testimony to Congress.

When:

  • Text of Testimony to be released on Tuesday 27th February 2018 at 1330GMT/0830EST
  • Testimony before the House Financial Services Committee on Tuesday 27th February at 1500GMT/1000EST
  • Testimony before the Senate Banking Committee on Thursday 1st March at 1500GMT/1000EST

PREVIEW

Fed Chair Powell will deliver his first monetary policy testimony to Congress, beginning on Tuesday in front of the House Financial Services Committee and continuing on Thursday in front of the Senate Banking Committee.

As previewed yesterday by Deutsche Bank, Powell is widely expected to follow a similar path to Janet Yellen and reiterate that further gradual increases in the Fed Funds Rate (FFR) are warranted. With a March rate hike appearing to be a forgone conclusion, it would take a huge dovish u-turn from Powell for the Fed to delay hiking next month.

Markets will instead be looking at the comments for any clues on whether four 25bps rate hikes in 2018 are likely. Back in his testimony ahead of getting confirmed as Fed Chair, Powell said that risks to the economy appeared to be balanced.

“The median rate projection of the FOMC last December called for three 25bps rate hikes in 2018, and we expect Powell’s comments to be supportive of this outlook,” writes HSBC.

Nevertheless, Powell would most likely prefer to keep the option of a fourth hike in 2018 open without so much as confirming it.

“A clear majority of the FOMC, including its new Chairman, will want the optionality on the table of a potential, perhaps even probable, fourth rate hike this year,” writes SGH Macro Advisers. “But our sense is that Powell and most of his Committee colleagues will not want to signal the fourth rate move as a given in either the testimony or, we suspect, the March meeting.”

On inflation, the Fed had previously categorized inflation weakness as “transitory,” (in his November confirmation hearing, Powell himself alluded to uncertainty regarding the path of inflation). However, the recent CPI data and average hourly earnings data both point to an acceleration in price pressures. The focus is on how Powell frames the recent firming. UBS believes Powell will likely project increased confidence that inflation will rise to target this year.

FED POLICY FRAMEWORK

A number of policymakers, including Rosengren and Mester, have recently spoken about how they’d like a review of the Fed’s policy framework. HSBC speculate that the topic could come up in the Q&A and markets will be looking for whether Powell would be open to reviewing the policy framework and his thoughts on alternatives to the current 2% inflation target, whether that be price-level targeting or a target-range for inflation.

MARKET VOLATILITY

The recent market volatility has been attributed to inflationary pressures forcing traders to reprice their expectations of the Fed hiking cycle. After the FOMC’s experience of the ‘taper tantrum’ in 2013, it will be cautious about managing market expectations.

At his swearing-in ceremony Powell alluded to the recent market volatility, stating that the Fed will “remain alert” to any financial stability risks presented by market gyrations. “He will labor to avoid even a whiff of baby-sitting a wobbly stock market with a ‘Powell put’ readiness to intervene,” SGH writes. “But he will be equally forceful in affirming the Fed will not rush to raise rates against what it believes will be a rising but hardly accelerationist inflation.”

* * *

As a bonus, here is Rafiki Capital Management’s Steven Englander explaining why he is looking for a Neutral to Dovish Powell testimony tomorrow

There is no particular reason for Fed Chair Powell to send a message on Tuesday and it is very possible that the Fed has not yet decided what message to send. That is the neutral part. Just keep saying ‘data dependent’ and that you will be watchful on inflation and no one goes away with any sense that policy has shifted.

Market expectations are steady at 70bps for the next year, but that is equivalent to Powell talking confidently about the three hikes implied by the dots.  He can say ‘it can be more or less, depending on the data’ and that would be neutral as well.  Take it for granted that he will sound  confident that inflation gradually will head back to 2% and that they are watchful for any signs that disinflationary shocks resume.

Hawkish would be opening the door to four hikes based on the data at hand or their current baseline. If he opens the door to four by saying something like “If the economy continues along the current path we see three,or possibly a bit more, hikes as reasonable”.  That brings the debate to three versus four, and the market is not priced for that. There is no reason for him to raise that issue, and recent Fed speakers have been pretty relaxed. If he strays from the ‘the FOMC feels’ or ‘the Committee feels’ to something more personal that would also be a signal, but there is no real reason to stray.

He could make a reasonable case that inflation is coming back faster than expected and that risks of overheating are higher because of the shift in fiscal policy, but he won’t. The market has 45bps total for March and June already priced, so there is no dovish mispricing to correct.  If he ramps up the hawkometer, he runs the risk of tanking markets and altering growth expectations for no particular reason. If he saw serious upside risk to inflation, you could make the case for his biting that bullet now, but nothing in his past statements suggest he has very strong nonconsensus views, so he will probably go with the FOMC/staff views, which are not alarmist. He is probably satisfied with market pricing and sees no immediate need to disrupt it.

One potentially hawkish headfake would be an expression of indifference to recent market fluctuations, saying the equivalent of ‘corrections are healthy’, ‘markets go up or down, or ‘the Fed is not targeting equity prices’. This is much easier to say when the S&P is 2775 and rising, rather than 2600 and falling. So it sounds hawkish and tough but in reality does not mean much.    

The dovish risk is that he too finds some language that conveys that the Fed is more worried about inflation undershoots than overshoots. He won’t emphasize the political motivation as I do in the note below, but there is a growing sense that no one on the FOMC wants to risk under-2% inflation and many want somewhat above 2% to mitigate zero bound problems and to anchor inflation expectations at or above 2%. Aiming for exactly 2% inflation, with symmetric risk on each side, is almost a quaint affectation at this point.

His predecessor would generally say that the Fed had a symmetric 2% target but occasionally spice it up with a comment that a period of above 2% inflation was not a big deal. When inflation was well below target, you could read that as a way of trying to manipulate inflation expectations upwards, and markets at least partially discounted such comments. Now that 2% looks as if it is a real possibility, a casual view about an overshoot will be taken more seriously. What he is not going to say is that there is a symmetric loss function, that 1.8% is as bad as 2.2%.  

If you convey that are really looking for higher, you are telling investors you will be behind the curve in hiking, and will give the cycle a chance to extend.  If you say ‘2% is 2%’, then you go to neutral when you hit the target and the business cycle is in late middle age.

As a last thought, consider the possibility that four hikes is not hawkish in absolute terms given the stimulus being applied, even if it is 30bps above current expectations. It would mean that asset markets are having a collosal misread of the upside activity and inflation risks. It may be consistent with inflation persisting closer to 2.5% than to 2% for an extended period. This is not a discussion Powell wants to have tomorrow, but it is one that may come down the road.

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Ghouta Is An Aleppo Redux To Save “Assad Must Go”

Authored by Tom Luongo,

It’s clear that U.S. policy in Syria is to make life as miserable as possible for both Russia and the Syrian people.  Syria is of such strategic importance to our foreign policy goals of encirclement that no matter the facts on the ground or the growing distaste for war abroad at home, U.S. foreign policy architects are on auto-pilot.

This morning Alexander Mercouris returns to The Duran with a wonderful piece comparing the current situation in Eastern Ghouta with that of Aleppo in 2016.  It is seriously worth every moment of your time to read.

Mercouris points out what should be obvious to everyone watching this conflict that the ISIS/Al-Qaeda groups holed up in Eastern Ghouta, a suburb of Damascus, represents the end of the “Assad Must Go” policy of the U.S.  If these guys are defeated then it begs the question of what happens next.

The short answer is that just as the destruction in 2016 of the Jihadi enclave in eastern Aleppo showed to the Western ‘democracy promotion’ lobby that their regime change war in Syria could not be won, so the destruction of the Jihadi enclave in east Ghouta near Damascus today would show to the Western ‘democracy promotion’ lobby that their regime change war in Syria is irretrievably lost.

The remaining Jihadi controlled territories in Syria would be reduced to a few fringe areas in remote and impoverished regions of Syria: places like Idlib province in Syria’s northwest, the ISIS holdout areas east of the Euphrates, and the small belt of territory near the increasingly lonely US base close to the Jordanian border at Al-Tanf.

He’s absolutely right about this.  And this is why we keep seeing reports of Israeli attacks in and around Damascus, to weaken the SAA’s logistical support system as well as attacks near Deir Ezzor to keep their attention split.

It doesn’t help that Turkish president Erdogan is overplaying his hand at Afrin, forcing the Syrian government to move troops in there to protect the Kurdish enclave from being wiped out.

The SAA is still fighting a four-front war.  And the U.S. strategy has been to keep the number of fronts from collapsing for as long as possible.  This draws out the conflict in the hope that the Syrian people will tire of war to the point of telling Assad to just give up.

Yeah, that’s as crazy as it sounded typing it out.

But, put nothing past the neocon warhawks that inhabit U.S. foreign policy circles.

Russia’s Response

The response from Russia has been to harden Syria’s defenses and upgrade its air superiority position.  S-400’s to Khmeimim. SU-57s in theatre.

Russia is also working the diplomatic channels hard.  And it should be noted that there has been zero response from Israel after the shooting down of one of its F-16i’s earlier this month.

It seems the phone call between Russian President Vladimir Putin and Israeli Prime Minister Netanyahu made the Russian position very clear.  So did Lebanon’s invitation for Russian warships at its ports.

Because, at this point, it is hard for anyone to believe that Israeli bombing missions in Syria are still targeting only Iranian supply convoys for deployment into Lebanon.  The timing and coincidence of these attacks are far more strategically aligned with weakening the SAA.

And I think Putin called Netanyahu out on this.

The Trump Factor

He, like Saudi crown prince, Mohammed bin Salman, made the mistake of over-estimating President’s Trump’s pledge of support.  Bin Salman took Trump’s initial visit last May as a green light to strike out at Qatar and destabilize the entire Arabian peninsula.

I feel Netanyahu similarly misinterpreted Trump’s announcement of moving the U.S. embassy to Jerusalem as a green light to go on the offensive against Israel’s enemies.

After that announcement the frequency and severity of Israeli air strikes in Syria intensified to a provocative level.  And I think it became obvious to Putin that a message needed to be sent to Netanyahu.

Both of Trump’s pledges of near-unconditional support of Saudi Arabia and Israel are the foundation for a greater Middle-East peace plan.  And I believe Putin understands what Trump is doing in this regard.

Israel will never sign off on a peace treaty without staunch U.S. support.  It hasn’t had that for two generations until Trump.  Saudi Arabia won’t stand down in its proxy war with Shiite-dominated Iran without a similar guarantee.

Both countries rightly feel they are under existential threat, hence their desire to atomize Syria and blunt any Iranian aspirations.

On the other side Putin has to convince everyone that he can keep Iran under control.  This is why, as The Saker points out, that Russia will only go so far in defending Syria, even if it looks inexplicable to the casual observer.

Trump’s speech at CPAC this weekend was a warning shot to his generals and the neocons.  His framing our presence in Syria and Afghanistan as nothing more than ISIS-eradication operations explicitly contradicts statements by both his Secretary of State, Rex Tillerson and his Secretary of Defense James Mattis.

Both of these men recently made policy statements about our goals in Syria being far bigger than just eliminating ISIS.  This was the first time Trump spoke forcefully on this subject in nearly six months.

He’s done allowing them carte blanche to create havoc in the Middle East.  He used the audience at CPAC (and a 93% straw poll approval) to declare an end to their deal to leave foreign policy to the generals and, by extension, the neocons while he focuses on domestic issues.

I outlined this ‘deal’ back in August and the reasons why it had to occur.  It marked a major change in the Trump presidency.

You give up on foreign policy and we’ll finally stop fighting you on domestic issues that we all know need to be dealt with as soon as possible.

All of a sudden, tax reform is back on the menu. Disaster relief funds for Houston will be approved. Obamacare repeal will be reintroduced after the debt ceiling theatre-of-the-irrelevant is settled.

The border wall will, however, remain tabled in perpetuity.

Trump has pretty much won every domestic policy battle over the past six months.   And as we approach the meat of the mid-term campaign season, Trump has kicked it off with a gentle reminder that all deals have a lifespan.

Ghouta is the War

When the SAA is successful in wiping out ISIS/Al-Qaeda forces holed up in eastern Ghouta, the Syrian ‘Civil War’ will be over.  Unfortunately, this operation isn’t going to end tomorrow or by the end of the week.

There will be false-flags, propaganda, pictures of children being bombed and the sickening images of “The White Helmets” staging all of it.   But, like in Aleppo, the information war will not change the facts on the ground.

It won’t change the fact that eventually, the pro-Assad alliance will exterminate the threat these jihadist animals pose.  And, as Mr. Mercouris so succinctly pointed out above, the rest is a mop-up operation.

The reason they will be successful is because the alternative is a full-out world war.  Putin and Trump both know this.  Putin has resisted every provocation to this point and by doing so has been inching closer to eventual victory.

And it’s a victory that once secured will allow that foundation he and Trump have been building to carry the weight of a peace process frozen for generations by bad policy and old enmities.

*  *  *

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Newsweek Unraveling; Dozens Of Journalists Bail As Fraud Probe Heats Up

Newsweek appears to be in much deeper trouble than previously thought in a wide-ranging fraud probe by the Manhattan District Attorney’s office, according to the Wall Street Journal

A suspicious loan application from Newsweek’s parent company two years ago helped trigger the probe into suspected bank fraud, advertising fraud, and ties between parent company Newsweek Media Group and a California bible college. 

The publication’s New York offices were raided on January 18 in connection with the probe, while dozens of employees and three top executives have left the publication amid its rapid unraveling. Editors, meanwhile, went nuclear on a Newsweek executive in a leaked call earlier this month. 

During the 90 minute recorded meeting between CCO Jonathan Davis and editors, Davis was repeatedly asked about alleged criminal behavior by parent company Newsweek Media Group.

“So you should be honest with everybody in this room: Are we running a money laundering operation? Are we evading taxes? You need to tell us that because we can’t work here if you’re a liar.” –Daily Beast

As the conference call went on, editors became increasingly angry at Davis’ repeated attempts to deflect serious questions. One editor said that the staff had “barely learned anything,” aside from Davis being “not credible.” 

Earlier this month we reported that the magazine had fired editor-in-chief Bob Roe, executive editor Ken Li, and journalist Celeste Katz – who had written several articles covering the active investigation into parent company Newsweek Media Group. Davis blames Katz’s reporting for doing “real damage” to Newsweek’s business relationships, and that it “ruined a business deal abroad.” 

A search of Olivet’s publicly available tax records shows that in 2014, IBT Media Inc., later renamed Newsweek Media Group, paid the school $1.63 million for a R&D agreement. The company is listed as a “former trustee.” In 2013, Olivet’s tax filing listed another similar payment from the media organization to the school: $1.26 million for a licensing agreement.

Agents seized 18 computer servers as part of a criminal probe into the company’s finances, which sources said had been underway for at least 17 months at the time authorities executed a search warrant. –Celeste Katz, Newsweek

Yes, we’re sure the January raid by the Manhattan D.A. itself wasn’t a factor in that “business deal abroad.” 

Ad fraud

A scheme by the publisher of Newsweek and the International Business Times to buy fraudulent traffic in order to help secure a major ad contract from a US government agency came to light following a report released by independent ad fraud researchers. 

Of note, IBT Media Inc. was later renamed Newsweek Media Group.

According to the report, IBTimes.com won a major video and display advertising contract from the Consumer Financial Protection Bureau (CFPB) – a federal oversight agency created six years ago as the brainchild of Senator Elizabeth Warren. Social Puncher, a consulting firm that investigates online ad fraud, notes in its report that “ads purchased by the CFPB were displayed to an audience that includes a significant amount of “cheap junk traffic with a share of bots” – effectively defrauding the agency.

The CFPB, now headed by Trump appointee Mick Mulvaney, told BuzzFeed News that the bureau is looking into the allegations. 

In response to questions from BuzzFeed News, Newsweek Media Group, the parent company of IBT, acknowledged it purchases audiences from ad networks that sell pop-up and pop-under traffic. It said this traffic represents a “small percentage of traffic on our sites” and denied any fraudulent activity. –Buzzfeed

We take allegations of fraud very seriously. Acting Director Mulvaney is actively looking into the work done by GMMB, and these allegations [of ad fraud by IBTimes.com] will be investigated as part of that process,” the spokesperson said.

Former Newsweek employees say as the parent group’s financial picture darkened, the pressure to employ the traffic-boosting techniques used at sister outlet IBTimes.com increased. These include publishing quick recaps of other outlets’ news, and entertainment and lifestyle “listicles.”

In early 2017, as IBTimes began seeing its traffic sink, it began shifting its editors to Newsweek to train writers there in its online tactics, the former Newsweek employees said. Newsweek has now overtaken IBTimes in traffic, according to comScore Inc. –WSJ

I was told to get a million hits a month, with the implication that the company could fold if we don’t,” one Newsweek staffer said. “’If you don’t hit the targets you’ll lose your jobs’ was the implication. People became just like a churn farm.”

The company has challenged the report’s findings. “Newsweek Media Group does not engage in any kind of traffic gaming techniques,” the company said in its statement.

Olivet University

The Manhattan D.A. is also investigating ties between Newsweek and Olivet University, a Christian university based in Anza, CA. 

In the raid of the Newsweek group offices, investigators seized computer servers that were unplugged and not in use, the people said.

Two weeks later, the chairman and co-founder of Newsweek Media Group, Etienne Uzac, and the company’s finance director, Marion Kim, who are married, resigned.

Mr. Uzac and Newsweek Media Group’s other founder, Johnathan Davis, have long-standing ties to Olivet University. The company has provided internships to students and alumni, Mr. Davis has taught journalism at the school, and his wife, Tracy Davis, is the president.

Investigators discovered that many of the computer servers appeared to have been leased from a single company, Oikos Networks, Inc., based in New York. The people familiar with the matter said investigators are looking at possible ties between Oikos executives and the Olivet church.

Any such ties could constitute a “related-party transaction” that the loan applications should have disclosed, the people familiar with the situation said. –WSJ

According to tax filings, Newsweek paid Olivet University $1.26 million in 2013 and $1.63 million in 2014

Both Newsweek and Olivet University have denied any wrongdoing. In a statement to The Journal, Newsweek Media Group said neither Olivet nor any other religious group had ever invested in the company.

That said, Newsweek reporters published an article in the past week detailing the media group’s alleged ties with Olivet – claiming that in addition to the licensing fees Newsweek paid, it also gave free ad space in the magazine to entities Olivet had business dealings with. 

During a three-month period, the magazine ran several ads promoting tourism and the Hudson Valley Regional Airport in New York’s Dutchess County, where Olivet was seeking tax breaks and construction permits for building an East Coast branch of the university, according to the report Newsweek itself published. County officials told Newsweek reporters they found the offer “odd” but accepted it. –WSJ

Time to stick a fork in it?

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