Treasury Sells $29 Billion In 7 Year Paper With Record Direct Bid

In the last of this week’s auctions, the Treasury just sold another $29 billion in 7 Year paper, which priced through the When Issued 1.873%, at 1.870%, the lowest yield since May, and at a Bid to Cover of 2.66, substantially higher than the 2.46 in September, and above the trailing twelve month average yield of 2.61%, once again reversing the recent trend in declining BTCs seen recently in both the 2 and the 5 Year auctions. And while the auction was largely non-remarkable, where it stood apart was that the Direct take down of 23.93% was the highest in history, with Indirects taking down 42.30%, above the 12M average of 42.3%, and the remaining 33.77% – the lowest since December 2010 – left to the Dealers, which will promptly flip this particular CUSIP WC0 back to the Fed.

And now, all eyes on the Fed, who will promise to continue monetizing as much 7 Year paper as the Treasury has the good grace of issuing.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/_zjKMRapQ_k/story01.htm Tyler Durden

Pulling The Plug On QE – Will The Fed Ever Taper?

Saxo Capital Markets’ latest infographic explores the long-term value of quantitative easing (QE) and, surveying the effect on the US economy, asks whether the US Federal Reserve will ever taper QE.

 

Via Saxo Bank,

The Fed first launched quantitative easing in November 2008 after efforts to boost the economy by lowering interest rates failed. The first programme of QE saw $600 billion injected into the economy by the Fed via mortgage-backed securities and government-sponsored enterprises. This then increased to $1.25 trillion as part of an expansion due to low initial impact. Again, the Fed tried QE in November 2010 with another $600 million invested in longer term Treasury securities. When this still failed to make a great enough impact, Ben Bernanke, chairman of the Federal Reserve, introduced a continuous QE programme, dubbed ‘QE Infinity’, which commits the Fed to buying up bonds at an alarming rate of $85 billion a month.

Quantitative easing, experts once assured us, would inspire the US economic recovery, leading the flagging economy to full health. But will this fiscal stimulus experiment instead drive the US economy to inflation and financial disaster? The Federal Reserve’s decision not to begin a tapering of its asset purchase programme signals a deeper dependency on intangible money printing. Last September’s third round of QE bond purchases were enacted in order to drive down interest rates, allowing businesses to borrow more easily, consequently boosting stock valuations. The QE addiction risks long-term hyperinflation and massive currency devaluation, fuelling market distortions and long-term reliance. Yet tapering may spark a climb in interest rates, prompting further – widespread – financial problems.

Saxo Capital Markets’ infographic draws attention to a mending US economy, with unemployment rates falling to 7.3% – albeit propped up by part-time workers – and Q2 GDP rising by 2.5% in 2013. Can the Fed kick the habit? These indications of growth prompted Bernanke to hint at QE tapering in June of this year, even stating that asset purchases (how the Fed has achieved QE) could come to an end if the US unemployment rate “is in the vicinity of 7%”. You can find more detailed figures, and see graphs of the changes and predictions, by checking the infographic.

Although QE tapering has been suggested, Bernanke has yet to announce a specific date when the artificially-sustained US economy will begin to be weaned off QE. Now, in October, the Fed has said that it will reduce asset purchases in early 2014, but they have laid out no specific timeline for this tapering. The Fed is also reluctant to make changes to Federal rates, announcing that they will remain at their current low levels. It is not until 2015 that they plan to start raising them again. You can see the expected pace of policy firming based on FOMC forecasts by viewing the graph in the infographic – the ‘long term’ forecast is for interest rates to return to 4%, but after how long?

There’s no doubt that QE Infinity has had an effect on a number of financial areas, including market rates. Ten Year US Treasury Yields have almost doubled in the last four months – you can see the visualised growth of US bond yields in the infographic – and this increase in growth could deter the Fed from tapering QE. Saxo Bank’s Head of FX Strategy, John Hardy, believes this may be the case and thinks that QE tapering could be “derailed by a weak US economy that can’t withstand the rise in interest rates we have already seen”.

Equity markets have also rallied in response to QE because the asset purchase programmes have invested money into private companies and their stocks have increased as a result. Savers are also choosing to invest in stocks whilst interest rates are low. When the FOMC decided not to start tapering QE, it meant equity markets continued to increase. You can track the value of the Dow Jones, DAX and FTSE over the last year in the infographic. If QE is encouraging the equity markets increase, will the Fed ever risk tapering?

 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Mer8qgPgWng/story01.htm Tyler Durden

Citi Warns Of “Disconcerting Disconnects” In US Markets

While BTFATH has caught on as the new normal meme, Cti's Tobias Levkovich has another that is just as critical to comprehending the current euphoria: LMNOP = "Liquidity, Momentum, Not Operating Performance." In essence, Levkovich notes that the recent sharp move has come about as liquidity concerns have shifted to the sidelines; upward momentum for stock prices following the shutdown ending is just pulling in more short covering while long-only investors also have been buyers given the need to meet alpha generation or benchmark requirements; but operating performance by companies is simply not there in the manner that is perceived. As he concludes, "we have not seen this kind of deviation before and it is troublesome to us… we must admit to being a bit worried that investors might be facing some near term volatility."

 

Via Citi's Tobias Levkovich,

Companies are beating lowered estimates, but it does not seem to be all that clean.

 

While roughly 70% of companies have again beaten 3Q13 estimates thus far (with approximately 45% having posted results), one needs to recognize that the numbers came down from near 6% year-over-year expected EPS growth back in late June to less than 1% by the time earnings began to get reported. Moreover, a good number have made or topped forecasts on lower than expected tax rates or one-time items, suggesting that results were not necessarily comprised of high quality beats. Accordingly, it is challenging to argue that the reporting season has been all that good when some detailed insight is applied.

The margin story continues to be far less about efficiencies than smart tax and balance sheet planning.

 

While there is much discussion about companies being able to manage their businesses wonderfully and thus even small revenue gains can generate more impressive bottom-line increases, this mindset is illfounded, in our view. The broad data shows that overall S&P 500 operating margins have been flat to down for more than six quarters and the true story behind net margins has been lower effective tax rates and interest expense. As a result, the somewhat less than inspiring quality seen in earnings recently only supports this idea and it may not be well understood by just headline-seeking investors.

Earnings guidance has been less than stellar with a weakening trend being noted. It is always worthwhile to track the trend of guidance from companies that provide such outlooks and unfortunately, here again, the forecasts have been coming down. While estimate cuts have been anticipated, the trading direction disparity relative to forward guidance is surprising.

Indeed, certain sectors’ profit growth forecasts for 2014 still look aggressive to us, such as Materials where investors are buying the shares that have been outperforming of late but could be surprised negatively in the weeks or months ahead.

The Citi Economic Surprise Index (CESI) is sliding almost uniformly around the world.

 

Many investors monitor the CESI and there is coincident correlation with stock prices. Hence, it is a bit disturbing that the European, U.S., Japanese and G-10 indices have all dipped from recent highs with the inherent mean reversion characteristic of the models suggesting further weakening in many of the regions potentially acting as a drag on equity markets. While many within the investment community are hoping for a strong rally into year-end, there is the distinct possibility that it has happened already and some modest correction is more likely.

Momentum trading and excessive liquidity appears to be keeping stock prices aloft even as some other nearer-term fundamentals are slipping. With QE tapering pretty much off the table until 1Q14 at the earliest and there being no imminent government shutdowns in the next couple of months, there has been a sense that there is an open avenue for liquidity and momentum to drive share prices higher. Indeed, seasonality is cited regularly in client meetings as support for this concept.

But, as noted with respect to the CESI, quarterly results and earnings guidance, the near term may not be as rewarding, just as September seasonal weakness did not occur either.

 

We have not seen this kind of deviation before and it is troublesome to us, but it potentially reflects the aforementioned liquidity and momentum drivers versus less than impressive fundamentals. With our Panic/Euphoria Model approaching complacency, we must admit to being a bit worried that investors might be facing some near term volatility.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/XFPPsiP_aaU/story01.htm Tyler Durden

Citi Warns Of "Disconcerting Disconnects" In US Markets

While BTFATH has caught on as the new normal meme, Cti's Tobias Levkovich has another that is just as critical to comprehending the current euphoria: LMNOP = "Liquidity, Momentum, Not Operating Performance." In essence, Levkovich notes that the recent sharp move has come about as liquidity concerns have shifted to the sidelines; upward momentum for stock prices following the shutdown ending is just pulling in more short covering while long-only investors also have been buyers given the need to meet alpha generation or benchmark requirements; but operating performance by companies is simply not there in the manner that is perceived. As he concludes, "we have not seen this kind of deviation before and it is troublesome to us… we must admit to being a bit worried that investors might be facing some near term volatility."

 

Via Citi's Tobias Levkovich,

Companies are beating lowered estimates, but it does not seem to be all that clean.

 

While roughly 70% of companies have again beaten 3Q13 estimates thus far (with approximately 45% having posted results), one needs to recognize that the numbers came down from near 6% year-over-year expected EPS growth back in late June to less than 1% by the time earnings began to get reported. Moreover, a good number have made or topped forecasts on lower than expected tax rates or one-time items, suggesting that results were not necessarily comprised of high quality beats. Accordingly, it is challenging to argue that the reporting season has been all that good when some detailed insight is applied.

The margin story continues to be far less about efficiencies than smart tax and balance sheet planning.

 

While there is much discussion about companies being able to manage their businesses wonderfully and thus even small revenue gains can generate more impressive bottom-line increases, this mindset is illfounded, in our view. The broad data shows that overall S&P 500 operating margins have been flat to down for more than six quarters and the true story behind net margins has been lower effective tax rates and interest expense. As a result, the somewhat less than inspiring quality seen in earnings recently only supports this idea and it may not be well understood by just headline-seeking investors.

Earnings guidance has been less than stellar with a weakening trend being noted. It is always worthwhile to track the trend of guidance from companies that provide such outlooks and unfortunately, here again, the forecasts have been coming down. While estimate cuts have been anticipated, the trading direction disparity relative to forward guidance is surprising.

Indeed, certain sectors’ profit growth forecasts for 2014 still look aggressive to us, such as Materials where investors are buying the shares that have been outperforming of late but could be surprised negatively in the weeks or months ahead.

The Citi Economic Surprise Index (CESI) is sliding almost uniformly around the world.

 

Many investors monitor the CESI and there is coincident correlation with stock prices. Hence, it is a bit disturbing that the European, U.S., Japanese and G-10 indices have all dipped from recent highs with the inherent mean reversion characteristic of the models suggesting further weakening in many of the regions potentially acting as a drag on equity markets. While many within the investment community are hoping for a strong rally into year-end, there is the distinct possibility that it has happened already and some modest correction is more likely.

Momentum trading and excessive liquidity appears to be keeping stock prices aloft even as some other nearer-term fundamentals are slipping. With QE tapering pretty much off the table until 1Q14 at the earliest and there being no imminent government shutdowns in the next couple of months, there has been a sense that there is an open avenue for liquidity and momentum to drive share prices higher. Indeed, seasonality is cited regularly in client meetings as support for this concept.

But, as noted with respect to the CESI, quarterly results and earnings guidance, the near term may not be as rewarding, just as September seasonal weakness did not occur either.

 

We have not seen this kind of deviation before and it is troublesome to us, but it potentially reflects the aforementioned liquidity and momentum drivers versus less than impressive fundamentals. With our Panic/Euphoria Model approaching complacency, we must admit to being a bit worried that investors might be facing some near term volatility.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/XFPPsiP_aaU/story01.htm Tyler Durden

Health Secretary Sebelius: “Hold Me Accountable For The Debacle”

In what can only be characterized as a stunning moment of transparency for the Obama administration, now 5 years into its reign of “unprecedented transparency” not to mention hope and change, US Health Secretary actually did the unthinkable: she took responsibility.  “Hold me accountable for the debacle,” Sebelius said in response to accusations at a congressional hearing today that her deputies failed to do their jobs. “I’m responsible.”

Whether this means that Verizon, and especially Dubya can rest peacefully now knowing it won’t somehow be his fault, remains to be seen – Obama will speak on healthcare at 3:55 pm and it is never too late to scapegoat the former president for this and that. However, we do applaud that finally the buck stops somewhere in the Obama chain of command. Sadly, taking responsibility for an epic failure does not equate to submitting one’s resignation: after all this is the government, not the private sector. And in the government failure can only be encouraged.

Watch the exchange below:

More from Bloomberg:

In a contentious exchange, lawmakers quizzed Sebelius on the malfunctioning website set up as part of the Patient Protection and Affordable Care Act of 2010. They also raised privacy concerns, asked about broken promises that people would be able to keep existing medical plans and questioned whether there was a way to penalize the contractors that built the site.

 

“I am as frustrated and angry as anyone with the flawed launch of healthcare.gov,” Sebelius told the House Energy and Commerce Committee. “Let me say directly to these Americans: you deserve better. I apologize.”

She continued…

“There isn’t a built-in penalty but I can tell you that paying for work that isn’t complete is not something that we will do,” Sebelius said.

 

Committee Chairman Fred Upton, a Michigan Republican, said “Americans are scared and frustrated.” He cited constituents’ concern that their existing health policies would be canceled, their premiums would rise or they would face tax penalties.

… but is happy to remain in her post. Naturally, any attempt to confirm a new Health Secretary in the current Congress would be complicated at best, and the last thing Obamacare needs is to have a permanently busted website, and a ponzi funding scheme whose funding accumulation is woefully behind schedule, with zero supervision.

More than 30 House Republicans and at least three U.S. senators are asking for Sebelius to step down. They include Senators Pat Roberts of Kansas and John Barrasso of Wyoming, as well as Representative Paul Ryan, the Republican vice presidential candidate in 2012 whose losing campaign promised to repeal the Affordable Care Act if elected.

 

“The bottom line is the problems with Obamacare run deeper than just the website,” House Majority Leader Eric Cantor, a Virginia Republican, said yesterday at a news conference.

That much is clear, and increasingly so even to the “most transparent administration in history.”


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/DZ-_4UgrZV4/story01.htm Tyler Durden

Health Secretary Sebelius: "Hold Me Accountable For The Debacle"

In what can only be characterized as a stunning moment of transparency for the Obama administration, now 5 years into its reign of “unprecedented transparency” not to mention hope and change, US Health Secretary actually did the unthinkable: she took responsibility.  “Hold me accountable for the debacle,” Sebelius said in response to accusations at a congressional hearing today that her deputies failed to do their jobs. “I’m responsible.”

Whether this means that Verizon, and especially Dubya can rest peacefully now knowing it won’t somehow be his fault, remains to be seen – Obama will speak on healthcare at 3:55 pm and it is never too late to scapegoat the former president for this and that. However, we do applaud that finally the buck stops somewhere in the Obama chain of command. Sadly, taking responsibility for an epic failure does not equate to submitting one’s resignation: after all this is the government, not the private sector. And in the government failure can only be encouraged.

Watch the exchange below:

More from Bloomberg:

In a contentious exchange, lawmakers quizzed Sebelius on the malfunctioning website set up as part of the Patient Protection and Affordable Care Act of 2010. They also raised privacy concerns, asked about broken promises that people would be able to keep existing medical plans and questioned whether there was a way to penalize the contractors that built the site.

 

“I am as frustrated and angry as anyone with the flawed launch of healthcare.gov,” Sebelius told the House Energy and Commerce Committee. “Let me say directly to these Americans: you deserve better. I apologize.”

She continued…

“There isn’t a built-in penalty but I can tell you that paying for work that isn’t complete is not something that we will do,” Sebelius said.

 

Committee Chairman Fred Upton, a Michigan Republican, said “Americans are scared and frustrated.” He cited constituents’ concern that their existing health policies would be canceled, their premiums would rise or they would face tax penalties.

… but is happy to remain in her post. Naturally, any attempt to confirm a new Health Secretary in the current Congress would be complicated at best, and the last thing Obamacare needs is to have a permanently busted website, and a ponzi funding scheme whose funding accumulation is woefully behind schedule, with zero supervision.

More than 30 House Republicans and at least three U.S. senators are asking for Sebelius to step down. They include Senators Pat Roberts of Kansas and John Barrasso of Wyoming, as well as Representative Paul Ryan, the Republican vice presidential candidate in 2012 whose losing campaign promised to repeal the Affordable Care Act if elected.

 

“The bottom line is the problems with Obamacare run deeper than just the website,” House Majority Leader Eric Cantor, a Virginia Republican, said yesterday at a news conference.

That much is clear, and increasingly so even to the “most transparent administration in history.”


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/DZ-_4UgrZV4/story01.htm Tyler Durden

Did Kevin Henry Just Break The “Sell VIX” Button?

While we have already heard this morning of numerous Nasdaq options markets prices being crossed, the latest SNAFU involves nothing less than that ultimate lever of market performance – the VIX – which just flash-smashed:

  • *VIX EARLIER SURGED TO 21.26 IN SINGLE TRADE THAT WAS ERASED
  • *VIX SURGES TO 15.27 BEFORE IMMEDIATELY DROPPING TO 14.17
It would appear that fist-stomping the "Sell VIX" button too many times on the Fed's Bloomberg terminal keyboard temporarily exposed reality. Or did the Fed realse its statement prematurely once again?
 
 
 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xJNcjtcKgf8/story01.htm Tyler Durden

Did Kevin Henry Just Break The "Sell VIX" Button?

While we have already heard this morning of numerous Nasdaq options markets prices being crossed, the latest SNAFU involves nothing less than that ultimate lever of market performance – the VIX – which just flash-smashed:

  • *VIX EARLIER SURGED TO 21.26 IN SINGLE TRADE THAT WAS ERASED
  • *VIX SURGES TO 15.27 BEFORE IMMEDIATELY DROPPING TO 14.17
It would appear that fist-stomping the "Sell VIX" button too many times on the Fed's Bloomberg terminal keyboard temporarily exposed reality. Or did the Fed realse its statement prematurely once again?
 
 
 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xJNcjtcKgf8/story01.htm Tyler Durden

Keith Alexander Speaks: “The NSA Protects America’s Privacy And Civil Liberties”

Authored by Keith Alexander (director of the NSA and commander of the US Cyber Command), originally posted at The National Interest,

Obama has identified cybersecurity threats as among the most serious challenges facing our nation. Secretary of Defense Chuck Hagel noted in April that cyberattacks “have grown into a defining security challenge.” And former secretary of defense Leon Panetta told an audience in 2012 that distributed denial-of-service attacks have already hit U.S. financial institutions. Describing this as “a pre-9/11 moment,” he explained that “the threat we face is already here.” The president and two defense secretaries have thus acknowledged publicly that we as a society are extraordinarily vulnerable. We rely on highly interdependent networks that are insecure, sensitive to interruption and lacking in resiliency. Our nation’s government, military, scientific, commercial and entertainment sectors all operate on the same networks as our adversaries. America is continually under siege in cyberspace, and the volume, complexity and potential impact of these assaults are steadily increasing.

Yet even as it confronts mounting threats, the United States also possesses a significant historical opportunity to deter them. America has built something unique in cyberspace—an evolving set of capabilities and activities that have not yet reached their collective potential. We have learned through two decades of trial and error that operationalizing our cyberdefenses by linking them to intelligence and information-assurance capabilities is not only the best but also the only viable response to growing threats. Our capabilities give us the power to change the narrative by making our networks more secure—and ensuring that cyberspace itself becomes a safer place for commerce, social interaction and the provision of public services. We want to take this opportunity to put these developments in historical context, and then explain why we as a nation must continue to build a cyberenterprise capable of guarding our critical infrastructure and population. We can and must do this while always protecting civil liberties, personal privacy and American values.

We now rely on social structures that barely existed 150 years ago. The order and functioning of modern societies, economies and militaries depend upon tight coordination of logistics and operations. Reliability of timing and flow has become indispensable for modern nations and their armed forces. This synchronization rests upon an infrastructure that allows communication, transport, finance, commerce, power and utilities to serve policy makers, managers, commanders and ordinary citizens in an efficient and reliable (i.e., unbroken) manner. Efficiency and dependability make realistic planning and effective operations possible across a whole society. Such intricate ties in the mesh of infrastructure systems also constitute a lucrative target for an attacker and a significant vulnerability for modern societies. Disrupt the synchronization, and the whole system of systems becomes unreliable—thus diminishing the nation’s power and influence.

This unprecedented degree of exposure to systemic dislocation was first anticipated over a century ago when British cabinet ministers and business leaders contemplated the potential for disruption to their entire economy if French armored cruisers even temporarily interrupted the empire’s overseas trade. The perceived peril to British society prompted the Royal Navy’s intelligence office to begin gathering data for the strategic assessment of risk and vulnerability. That effort convinced decision makers that Britain was vulnerable to disruption of its commerce and to sabotage of its war-fighting capabilities. At the same time, Royal Navy planners recognized opportunities to exploit Germany’s systemic vulnerability to economic disruption. This would require the coordination of a range of institutions and capabilities: financial services, international communications, shipping, energy, diplomacy, and naval and intelligence activities meshed into what historian Nicholas Lambert aptly describes as an “Armageddon” strategy.

London approved use of this collection of levers as a weapon against Germany in 1912, but when war came soon afterward British leaders quickly recoiled from the plan under economic and diplomatic pressure. Britain’s economic-warfare measures were proving to be shockingly effective. At the outset of war in 1914 a global financial panic affected world trade on a scale like that of 1929. Britain’s strategy swiftly exacerbated the crisis. Citizen and business confidence in economic institutions collapsed. Traders withdrew from markets. World trade ebbed. Commodity exchanges closed their doors. Banks recalled loans, and global liquidity dried up. In an increasingly globalized and interconnected world, moreover, many of the unintended victims of economic warfare were British.

While the British never fully implemented their 1912 vision of coordinated levers of power to defeat an enemy, the notion of employing strategic technological and economic power indirectly helped bring about a new capability in the United States. One of the most important pillars of Britain’s strategy, which was bequeathed to the United States, was a strategic signals-intelligence capability that served both national and battlefield users. By 1952, the United States had established the National Security Agency (NSA) as the capstone of a signals-intelligence enterprise. That capability became computerized over time, and the resulting “cryptologic platform” emerged as one of the bases of expertise and infrastructure for cyberspace and cyberoperations. From this emerged America’s military cyberspace architecture and capabilities. In 1981, the Pentagon gave the NSA the mission to help secure data in Department of Defense computers. In 1990, that role expanded to the government’s “national-security information systems.” The NSA also played a role in helping the government and military to understand the vulnerability of the nation’s critical infrastructure. When planning accelerated for military cyberoperations after 2001, the NSA provided expertise to the Pentagon’s new “network warfare” capabilities.

Since then, cyberspace has become vital for the functioning of our nation in the digital age. Our national digital infrastructure facilitates the movement of commodities and information, and stores them in virtual form as well. We now use cyberspace to synchronize those critical infrastructure systems that coordinated economies and militaries a century ago. Many of the same vulnerabilities that Royal Navy planners noted in 1905 apply in cyberspace and are magnified by our dependence on the information sector. The features that allow all these infrastructure sectors to link together in cyberspace, however, also make them accessible to intruders from almost anywhere at a comparative minimum of cost and risk. The cyberdimension, therefore, adds an unprecedented degree of complexity and vulnerability to the task of defending ourselves against a modern-day “Armageddon” strategy.

The century-old dream and nightmare of crippling a modern society by wrecking its infrastructure—or just by disturbing its synchronization of functions—is now a reality others are dreaming of employing against the United States. We do not know how effective such a strategy would be against the United States in practice, but glimpses of global financial panics in recent years should raise concern about even partial “success” for an adversary attempting such an attack.

Military Cyber-capabilities are now being “normalized,” following a traditional path from commercial innovations to war-fighting systems (much like that of aviation in the last century). Several nations have pondered cyberdoctrine for years at senior military schools and think tanks. Cyberattacks against Georgia in 2008 demonstrated how network warfare could be employed alongside conventional military forces to produce operational effects. Lessons learned from such operations are now being turned into tactics and planning by future adversaries. This normalization of cybereffects and their integration with conventional forces will not diminish their power—on the contrary, it will magnify it. Decision makers like former secretary Panetta have mentioned the possibility of a “cyber Pearl Harbor” to evoke our current predicament. We may have already witnessed the cyberequivalents of the sinking of a battleship at Taranto and practice runs with shallow-water torpedoes (the inspiration and preparation, respectively, for Japan’s Pearl Harbor attack).

Cyberconflict occurs on a second level as well. Three times over the previous millennium, military revolutions allowed forces to conquer huge territories and forcibly transfer riches from losers to winners (namely, in the Mongol conquests of China, Russia and Baghdad; the Spanish conquests of the Americas; and the European empires in the nineteenth century). Remote cyberexploitation now facilitates the systematic pillaging of a rival state without military conquest and the ruin of the losing power. We have seen a staggering list of intrusions into major corporations in our communications, financial, information-technology, defense and natural-resource sectors. The intellectual property exfiltrated to date can be counted in the tens to hundreds of thousands of terabytes. We are witnessing another great shift of wealth by means of cybertheft, and this blunts our technological and innovative edge. Yet we can neither prevent major attacks nor stop wholesale theft of intellectual capital because we rely on architecture built for availability, functionality and ease of use—with security bolted on as an afterthought.

The United States has not sat idle, however, in the face of diverse and persistent threats in cyberspace that no one federal department or agency alone can defeat. There is clear recognition that the nation’s cybersecurity requires a collaborative approach and that each department brings unique authorities, resources and capabilities to the table. The Department of Homeland Security is the lead federal department responsible for national protection against domestic cybersecurity incidents. The Department of Justice, through the Federal Bureau of Investigation, is the lead federal department responsible for the investigation, attribution, disruption and prosecution of cybersecurity incidents. The Department of Defense has the lead for national defense, with the responsibility for defending the nation from foreign cyberattack. This team approach helps us protect U.S. infrastructure and information, detect attacks and deter adversaries in cyberspace. Relationships also have been forged with private enterprises that carry the data (or create or study the hardware and software that manage the data). Working together, we are improving our knowledge about what is happening across the cyberdomain, enhancing shared situational awareness for the whole U.S. government while ensuring robust protection for privacy and civil liberties.

At the heart of our national-scale capability for defending the nation in cyberspace is the set of relationships for intelligence, analysis, and information security and assurance. The NSA makes that team work. The agency’s importance was reflected in then secretary of defense Robert Gates’s 2009 decision to designate the director of the NSA as commander of U.S. Cyber Command (USCYBERCOM) as well, and to locate the new command’s headquarters at Fort Meade, Maryland, alongside the NSA. Through these decisions, the department leveraged the similarities and overlaps between the capabilities needed for the conduct of the NSA’s core missions—signals intelligence and information assurance—and those of USCYBERCOM: to provide for the defense and secure operation of Defense Department networks and, upon order by appropriate authority, to operate in cyberspace in defense of the nation.

The NSA and USCYBERCOM operate under multiple layers of institutional oversight that reinforce our commitment to privacy and civil liberties. These include processes internal to both organizations, executive-branch oversight accountability mechanisms, congressional oversight and judicial scrutiny. Physical, managerial and technical safeguards serve to prevent, correct and report violations of procedures. There is a culture of accountability and compliance, rigorous training and competency testing, auditable NSA practices and self-reporting of incidents. The NSA and USCYBERCOM do not set these procedures but comply with very specific provisions approved by our nation’s lawmakers. Far from imperiling civil liberties and privacy, the tight links between the NSA and our growing cybercapabilities help to ensure professional, sober and accountable consideration of potential impacts from our operations.

The evolution of USCYBERCOM has reinforced the imperative for a close and unique connection with the NSA. The command’s creation in 2010 reorganized the department’s Title 10 “war fighting” segment of our cyberteam and represented a major organizational step toward developing and refining the Department of Defense’s role in strengthening the nation’s cybersecurity. Events since the formation of USCYBERCOM have taught us a great deal about the gravity of the cybersecurity threat, the development of the Department of Defense’s operational capabilities, the department’s role in a whole-of-government approach to cybersecurity, and structural, policy and doctrinal changes that are needed. Some of these changes can be implemented as part of the natural evolution of the command. Others require activity outside USCYBERCOM itself—within the Department of Defense, by the executive branch more broadly, by Congress and by the private sector.

The synergy between the NSA and USCYBERCOM is evident every day even if it is not visible. The cryptologic platform constitutes the collection of signals-intelligence and communications-security capabilities that since 1952 have served users ranging from national customers to departmental analysts to battlefield commanders. To the extent permissible by law, USCYBERCOM and the NSA have integrated operations, people and capabilities to help the nation and its allies respond to threats in cyberspace. USCYBERCOM’s defense of U.S. military networks depends on knowing what is happening in cyberspace, which in turn depends on intelligence produced by the NSA and other members of the intelligence community on adversary intentions and capabilities. USCYBERCOM’s planning and operations also rely on the NSA’s cybercapabilities. No one entity in the United States manages or coordinates all this activity on a strategic scale. It requires cooperation across government agencies and with industry.

The cyberteam works for strategic, operational and tactical ends, and it does so because we cannot afford (in terms of resources, security or missed opportunities) to maintain distinct capabilities for strategic, operational and tactical decision makers. This approach makes it possible for the United States to operate national-security information systems with some assurance of security; to understand the dimensions of the threats that we face; and to know which threats are exaggerated. It also gives us a measure of warning and situational awareness and is the basis on which those vital attributes will be improved in the future. What are the possibilities for maximizing its potential?

AT THE dawn of the “cyberage” in the 1980s, the United States was positioned to take a commanding military lead in this new domain. Much of the world’s cyberinfrastructure, capacity and computer-security expertise resided in America, and the U.S. government debated policies that might have made federal and critical infrastructure networks much more secure than contemporary external threats could have surmounted. The U.S. military and intelligence community held strong advantages in cybercapabilities that might have been mobilized in the 1990s. Although potential threats were recognized early, there was little urgency to reorganize and change established processes. By the time the United States started losing intellectual property on a massive scale in the middle of the last decade, the opportunity to capitalize on commanding advantages had been lost.

Today the United States is striving to maintain the edge it holds over potential adversaries in cyberspace. This advantage is preserved in part by the large U.S. government capacity in this domain. Our lead is also maintained by our adversaries’ own difficulties in crafting new policies, doctrines and organizations to operate in the new cyberdomain; in some cases their social and political contexts are even more challenging than ours. This American advantage might not last long. We still, however, would not trade our predicament for that of any other nation on earth. Every nation has significant vulnerabilities that can be exploited in and through cyberspace; almost alone among nations, we have the ability to lessen ours dramatically.

As then deputy secretary of defense William Lynn explained in Foreign Affairs in 2010, global circumstances continue to require an agile and technologically advanced cybercapability. We have made progress but still must do more to ensure that we have: the situational awareness needed to defend our networks; the authority to respond to threats to the United States, even beyond the boundaries of military systems; legislation that facilitates information sharing with the private sector; established security standards for critical infrastructure; trained and ready cyberforces certified to common, baseline standards; doctrine along with tactics, techniques and procedures for educating our armed forces on the conduct of military operations in cyberspace; a defensible cyberarchitecture enabled by the new Joint Information Environment (JIE); and clear lines of command and control to ensure network-speed decision making and action. The Department of Defense is making progress on an array of efforts to address these challenges, all the while protecting the privacy of our citizens and the civil liberties that are at the foundation of our political system.

The Pentagon is moving to reduce significantly the number of its networks and limit the points where those networks touch the Internet. Its new joint network—the JIE—is inherently more defensible than the fifteen thousand disparate enclaves that currently exist in the Department of Defense. USCYBERCOM is involved in efforts to leverage cloud-computing technology to dramatically increase the ability to safely and securely store and access data.

We continue to improve our ability to understand the vulnerabilities of our networks, the cyberenvironment and the capabilities of adversaries. Doing so improves situational awareness of what is happening in cyberspace for the benefit of government organizations, private industry and foreign partners.

We are aware that as we increase our dependence on networks in cyberspace, we must have a codified and logical manner by which to provide structure, command and control to our forces—and to allow the coordination and synchronization of U.S. military operations with those of our military allies and our partners.

We are developing a force capable of defending the nation in cyberspace, operating and defending Department of Defense information networks, and providing direct support to Unified Combatant Command plans and operations. These forces must be able to defend our national-security networks, providing a vital sanctuary from which we can operate even while under attack. Having such an assured capability will not only defend Department of Defense and national-security functions, but also help government and civilian networks by convincing adversaries that an “Armageddon” strategy will not succeed against America.

We are working to understand how existing international and domestic laws and norms apply in the new cyberenvironment. We are also developing processes and policies to manage cyberemergencies and to defeat cyberattacks.

Our reliance on cyberspace yields significant strategic benefits but also poses grave risks to our nation. The very nature of cyberspace is one of convergence—of networks, devices and people combining and interacting in new and increasingly complex ways. Communications that previously moved in separate channels now travel in one, global network—the Internet. We must be able to operate securely in this convergent space and to protect the broader social, political and economic developments that the digital age has brought us. The things we value—personal wealth, national economic prosperity, intellectual property, our nation’s defense secrets and even our way of life—are all targets for our adversaries. More and more, those treasures reside in cyberspace, and that is the battleground where adversaries can threaten us. The potential for strategic-level theft and disruption is growing as adversaries probe our critical infrastructure networks and take our data. We do not know how economically and physically damaging coordinated cyberattacks could be if mounted on a national scale—or if a “limited” attack could get out of hand and cause cascading destruction. But the vulnerability of critical infrastructure and the power of cyberweapons together represent serious cause for concern about the resiliency of modern, networked economies and societies.

Defending the nation in cyberspace, preventing strategic surprise and maintaining technological advantage all depend on collaboration, information sharing and a world-class workforce. This requires teamwork across the military, intelligence community, the federal agencies, industry, academia and our international partners. Leadership is vitally important as well. The U.S. government has made significant strides in defining cyberdoctrine, organizing cybercapabilities and building cybercapacity. We must do much more to sustain our momentum in a domain where adversary capabilities continue to evolve as fast as or faster than ours do. Our cyberteam can be the core of whatever national capability we build, but that capability must also extend well beyond the confines and authorities of the Department of Defense and even the federal government. Building that extended cyberenterprise now is indispensable to our ability to deter and defeat enemies in cyberspace so that they do not threaten our security, prosperity and way of life.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/dVxMynoPxlw/story01.htm Tyler Durden

Keith Alexander Speaks: "The NSA Protects America's Privacy And Civil Liberties"

Authored by Keith Alexander (director of the NSA and commander of the US Cyber Command), originally posted at The National Interest,

Obama has identified cybersecurity threats as among the most serious challenges facing our nation. Secretary of Defense Chuck Hagel noted in April that cyberattacks “have grown into a defining security challenge.” And former secretary of defense Leon Panetta told an audience in 2012 that distributed denial-of-service attacks have already hit U.S. financial institutions. Describing this as “a pre-9/11 moment,” he explained that “the threat we face is already here.” The president and two defense secretaries have thus acknowledged publicly that we as a society are extraordinarily vulnerable. We rely on highly interdependent networks that are insecure, sensitive to interruption and lacking in resiliency. Our nation’s government, military, scientific, commercial and entertainment sectors all operate on the same networks as our adversaries. America is continually under siege in cyberspace, and the volume, complexity and potential impact of these assaults are steadily increasing.

Yet even as it confronts mounting threats, the United States also possesses a significant historical opportunity to deter them. America has built something unique in cyberspace—an evolving set of capabilities and activities that have not yet reached their collective potential. We have learned through two decades of trial and error that operationalizing our cyberdefenses by linking them to intelligence and information-assurance capabilities is not only the best but also the only viable response to growing threats. Our capabilities give us the power to change the narrative by making our networks more secure—and ensuring that cyberspace itself becomes a safer place for commerce, social interaction and the provision of public services. We want to take this opportunity to put these developments in historical context, and then explain why we as a nation must continue to build a cyberenterprise capable of guarding our critical infrastructure and population. We can and must do this while always protecting civil liberties, personal privacy and American values.

We now rely on social structures that barely existed 150 years ago. The order and functioning of modern societies, economies and militaries depend upon tight coordination of logistics and operations. Reliability of timing and flow has become indispensable for modern nations and their armed forces. This synchronization rests upon an infrastructure that allows communication, transport, finance, commerce, power and utilities to serve policy makers, managers, commanders and ordinary citizens in an efficient and reliable (i.e., unbroken) manner. Efficiency and dependability make realistic planning and effective operations possible across a whole society. Such intricate ties in the mesh of infrastructure systems also constitute a lucrative target for an attacker and a significant vulnerability for modern societies. Disrupt the synchronization, and the whole system of systems becomes unreliable—thus diminishing the nation’s power and influence.

This unprecedented degree of exposure to systemic dislocation was first anticipated over a century ago when British cabinet ministers and business leaders contemplated the potential for disruption to their entire economy if French armored cruisers even temporarily interrupted the empire’s overseas trade. The perceived peril to British society prompted the Royal Navy’s intelligence office to begin gathering data for the strategic assessment of risk and vulnerability. That effort convinced decision makers that Britain was vulnerable to disruption of its commerce and to sabotage of its war-fighting capabilities. At the same time, Royal Navy planners recognized opportunities to exploit Germany’s systemic vulnerability to economic disruption. This would require the coordination of a range of institutions and capabilities: financial services, international communications, shipping, energy, diplomacy, and naval and intelligence activities meshed into what historian Nicholas Lambert aptly describes as an “Armageddon” strategy.

London approved use of this collection of levers as a weapon against Germany in 1912, but when war came soon afterward British leaders quickly recoiled from the plan under economic and diplomatic pressure. Britain’s economic-warfare measures were proving to be shockingly effective. At the outset of war in 1914 a global financial panic affected world trade on a scale like that of 1929. Britain’s strategy swiftly exacerbated the crisis. Citizen and business confidence in economic institutions collapsed. Traders withdrew from markets. World trade ebbed. Commodity exchanges closed their doors. Banks recalled loans, and global liquidity dried up. In an increasingly globalized and interconnected world, moreover, many of the unintended victims of economic warfare were British.

While the British never fully implemented their 1912 vision of coordinated levers of power to defeat an enemy, the notion of employing strategic technological and economic power indirectly helped bring about a new capability in the United States. One of the most important pillars of Britain’s strategy, which was bequeathed to the United States, was a strategic signals-intelligence capability that served both national and battlefield users. By 1952, the United States had established the National Security Agency (NSA) as the capstone of a signals-intelligence enterprise. That capability became computerized over time, and the resulting “cryptologic platform” emerged as one of the bases of expertise and infrastructure for cyberspace and cyberoperations. From this emerged America’s military cyberspace architecture and capabilities. In 1981, the Pentagon gave the NSA the mission to help secure data in Department of Defense computers. In 1990, that role expanded to the government’s “national-security information systems.” The NSA also played a role in helping the government and military to understand the vulnerability of the nation’s critical infrastructure. When planning accelerated for military cyberoperations after 2001, the NSA provided expertise to the Pentagon’s new “network warfare” capabilities.

Since then, cyberspace has become vital for the functioning of our nation in the digital age. Our national digital infrastructure facilitates the movement of commodities and information, and stores them in virtual form as well. We now use cyberspace to synchronize those critical infrastructure systems that coordinated economies and militaries a century ago. Many of the same vulnerabilities that Royal Navy planners noted in 1905 apply in cyberspace and are magnified by our dependence on the information sector. The features that allow all these infrastructure sectors to link together in cyberspace, however, also make them accessible to intruders from almost anywhere at a comparative minimum of cost and risk. The cyberdimension, therefore, adds an unprecedented degree of complexity and vulnerability to the task of defending ourselves against a modern-day “Armageddon” strategy.

The century-old dream and nightmare of crippling a modern society by wrecking its infrastructure—or just by disturbing its synchronization of functions—is now a reality others are dreaming of employing against the United States. We do not know how effective such a strategy would be against the United States in practice, but glimpses of global financial panics in recent years should raise concern about even partial “success” for an adversary attempting such an attack.

Military Cyber-capabilities are now being “normalized,” following a traditional path fro
m commercial innovations to war-fighting systems (much like that of aviation in the last century). Several nations have pondered cyberdoctrine for years at senior military schools and think tanks. Cyberattacks against Georgia in 2008 demonstrated how network warfare could be employed alongside conventional military forces to produce operational effects. Lessons learned from such operations are now being turned into tactics and planning by future adversaries. This normalization of cybereffects and their integration with conventional forces will not diminish their power—on the contrary, it will magnify it. Decision makers like former secretary Panetta have mentioned the possibility of a “cyber Pearl Harbor” to evoke our current predicament. We may have already witnessed the cyberequivalents of the sinking of a battleship at Taranto and practice runs with shallow-water torpedoes (the inspiration and preparation, respectively, for Japan’s Pearl Harbor attack).

Cyberconflict occurs on a second level as well. Three times over the previous millennium, military revolutions allowed forces to conquer huge territories and forcibly transfer riches from losers to winners (namely, in the Mongol conquests of China, Russia and Baghdad; the Spanish conquests of the Americas; and the European empires in the nineteenth century). Remote cyberexploitation now facilitates the systematic pillaging of a rival state without military conquest and the ruin of the losing power. We have seen a staggering list of intrusions into major corporations in our communications, financial, information-technology, defense and natural-resource sectors. The intellectual property exfiltrated to date can be counted in the tens to hundreds of thousands of terabytes. We are witnessing another great shift of wealth by means of cybertheft, and this blunts our technological and innovative edge. Yet we can neither prevent major attacks nor stop wholesale theft of intellectual capital because we rely on architecture built for availability, functionality and ease of use—with security bolted on as an afterthought.

The United States has not sat idle, however, in the face of diverse and persistent threats in cyberspace that no one federal department or agency alone can defeat. There is clear recognition that the nation’s cybersecurity requires a collaborative approach and that each department brings unique authorities, resources and capabilities to the table. The Department of Homeland Security is the lead federal department responsible for national protection against domestic cybersecurity incidents. The Department of Justice, through the Federal Bureau of Investigation, is the lead federal department responsible for the investigation, attribution, disruption and prosecution of cybersecurity incidents. The Department of Defense has the lead for national defense, with the responsibility for defending the nation from foreign cyberattack. This team approach helps us protect U.S. infrastructure and information, detect attacks and deter adversaries in cyberspace. Relationships also have been forged with private enterprises that carry the data (or create or study the hardware and software that manage the data). Working together, we are improving our knowledge about what is happening across the cyberdomain, enhancing shared situational awareness for the whole U.S. government while ensuring robust protection for privacy and civil liberties.

At the heart of our national-scale capability for defending the nation in cyberspace is the set of relationships for intelligence, analysis, and information security and assurance. The NSA makes that team work. The agency’s importance was reflected in then secretary of defense Robert Gates’s 2009 decision to designate the director of the NSA as commander of U.S. Cyber Command (USCYBERCOM) as well, and to locate the new command’s headquarters at Fort Meade, Maryland, alongside the NSA. Through these decisions, the department leveraged the similarities and overlaps between the capabilities needed for the conduct of the NSA’s core missions—signals intelligence and information assurance—and those of USCYBERCOM: to provide for the defense and secure operation of Defense Department networks and, upon order by appropriate authority, to operate in cyberspace in defense of the nation.

The NSA and USCYBERCOM operate under multiple layers of institutional oversight that reinforce our commitment to privacy and civil liberties. These include processes internal to both organizations, executive-branch oversight accountability mechanisms, congressional oversight and judicial scrutiny. Physical, managerial and technical safeguards serve to prevent, correct and report violations of procedures. There is a culture of accountability and compliance, rigorous training and competency testing, auditable NSA practices and self-reporting of incidents. The NSA and USCYBERCOM do not set these procedures but comply with very specific provisions approved by our nation’s lawmakers. Far from imperiling civil liberties and privacy, the tight links between the NSA and our growing cybercapabilities help to ensure professional, sober and accountable consideration of potential impacts from our operations.

The evolution of USCYBERCOM has reinforced the imperative for a close and unique connection with the NSA. The command’s creation in 2010 reorganized the department’s Title 10 “war fighting” segment of our cyberteam and represented a major organizational step toward developing and refining the Department of Defense’s role in strengthening the nation’s cybersecurity. Events since the formation of USCYBERCOM have taught us a great deal about the gravity of the cybersecurity threat, the development of the Department of Defense’s operational capabilities, the department’s role in a whole-of-government approach to cybersecurity, and structural, policy and doctrinal changes that are needed. Some of these changes can be implemented as part of the natural evolution of the command. Others require activity outside USCYBERCOM itself—within the Department of Defense, by the executive branch more broadly, by Congress and by the private sector.

The synergy between the NSA and USCYBERCOM is evident every day even if it is not visible. The cryptologic platform constitutes the collection of signals-intelligence and communications-security capabilities that since 1952 have served users ranging from national customers to departmental analysts to battlefield commanders. To the extent permissible by law, USCYBERCOM and the NSA have integrated operations, people and capabilities to help the nation and its allies respond to threats in cyberspace. USCYBERCOM’s defense of U.S. military networks depends on knowing what is happening in cyberspace, which in turn depends on intelligence produced by the NSA and other members of the intelligence community on adversary intentions and capabilities. USCYBERCOM’s planning and operations also rely on the NSA’s cybercapabilities. No one entity in the United States manages or coordinates all this activity on a strategic scale. It requires cooperation across government agencies and with industry.

The cyberteam works for strategic, operational and tactical ends, and it does so because we cannot afford (in terms of resources, security or missed opportunities) to maintain distinct capabilities for strategic, operational and tactical decision makers. This approach makes it possible for the United States to operate national-security information systems with some assurance of security; to understand the dimensions of the threats that we face; and to know which threats are exaggerated. It also gives us a measure of warning and situational awareness and is the basis on which those vital attributes will be improved in the future. What are the possibilities for maximizing its potential?

AT THE dawn of the “c
yberage” in the 1980s, the United States was positioned to take a commanding military lead in this new domain. Much of the world’s cyberinfrastructure, capacity and computer-security expertise resided in America, and the U.S. government debated policies that might have made federal and critical infrastructure networks much more secure than contemporary external threats could have surmounted. The U.S. military and intelligence community held strong advantages in cybercapabilities that might have been mobilized in the 1990s. Although potential threats were recognized early, there was little urgency to reorganize and change established processes. By the time the United States started losing intellectual property on a massive scale in the middle of the last decade, the opportunity to capitalize on commanding advantages had been lost.

Today the United States is striving to maintain the edge it holds over potential adversaries in cyberspace. This advantage is preserved in part by the large U.S. government capacity in this domain. Our lead is also maintained by our adversaries’ own difficulties in crafting new policies, doctrines and organizations to operate in the new cyberdomain; in some cases their social and political contexts are even more challenging than ours. This American advantage might not last long. We still, however, would not trade our predicament for that of any other nation on earth. Every nation has significant vulnerabilities that can be exploited in and through cyberspace; almost alone among nations, we have the ability to lessen ours dramatically.

As then deputy secretary of defense William Lynn explained in Foreign Affairs in 2010, global circumstances continue to require an agile and technologically advanced cybercapability. We have made progress but still must do more to ensure that we have: the situational awareness needed to defend our networks; the authority to respond to threats to the United States, even beyond the boundaries of military systems; legislation that facilitates information sharing with the private sector; established security standards for critical infrastructure; trained and ready cyberforces certified to common, baseline standards; doctrine along with tactics, techniques and procedures for educating our armed forces on the conduct of military operations in cyberspace; a defensible cyberarchitecture enabled by the new Joint Information Environment (JIE); and clear lines of command and control to ensure network-speed decision making and action. The Department of Defense is making progress on an array of efforts to address these challenges, all the while protecting the privacy of our citizens and the civil liberties that are at the foundation of our political system.

The Pentagon is moving to reduce significantly the number of its networks and limit the points where those networks touch the Internet. Its new joint network—the JIE—is inherently more defensible than the fifteen thousand disparate enclaves that currently exist in the Department of Defense. USCYBERCOM is involved in efforts to leverage cloud-computing technology to dramatically increase the ability to safely and securely store and access data.

We continue to improve our ability to understand the vulnerabilities of our networks, the cyberenvironment and the capabilities of adversaries. Doing so improves situational awareness of what is happening in cyberspace for the benefit of government organizations, private industry and foreign partners.

We are aware that as we increase our dependence on networks in cyberspace, we must have a codified and logical manner by which to provide structure, command and control to our forces—and to allow the coordination and synchronization of U.S. military operations with those of our military allies and our partners.

We are developing a force capable of defending the nation in cyberspace, operating and defending Department of Defense information networks, and providing direct support to Unified Combatant Command plans and operations. These forces must be able to defend our national-security networks, providing a vital sanctuary from which we can operate even while under attack. Having such an assured capability will not only defend Department of Defense and national-security functions, but also help government and civilian networks by convincing adversaries that an “Armageddon” strategy will not succeed against America.

We are working to understand how existing international and domestic laws and norms apply in the new cyberenvironment. We are also developing processes and policies to manage cyberemergencies and to defeat cyberattacks.

Our reliance on cyberspace yields significant strategic benefits but also poses grave risks to our nation. The very nature of cyberspace is one of convergence—of networks, devices and people combining and interacting in new and increasingly complex ways. Communications that previously moved in separate channels now travel in one, global network—the Internet. We must be able to operate securely in this convergent space and to protect the broader social, political and economic developments that the digital age has brought us. The things we value—personal wealth, national economic prosperity, intellectual property, our nation’s defense secrets and even our way of life—are all targets for our adversaries. More and more, those treasures reside in cyberspace, and that is the battleground where adversaries can threaten us. The potential for strategic-level theft and disruption is growing as adversaries probe our critical infrastructure networks and take our data. We do not know how economically and physically damaging coordinated cyberattacks could be if mounted on a national scale—or if a “limited” attack could get out of hand and cause cascading destruction. But the vulnerability of critical infrastructure and the power of cyberweapons together represent serious cause for concern about the resiliency of modern, networked economies and societies.

Defending the nation in cyberspace, preventing strategic surprise and maintaining technological advantage all depend on collaboration, information sharing and a world-class workforce. This requires teamwork across the military, intelligence community, the federal agencies, industry, academia and our international partners. Leadership is vitally important as well. The U.S. government has made significant strides in defining cyberdoctrine, organizing cybercapabilities and building cybercapacity. We must do much more to sustain our momentum in a domain where adversary capabilities continue to evolve as fast as or faster than ours do. Our cyberteam can be the core of whatever national capability we build, but that capability must also extend well beyond the confines and authorities of the Department of Defense and even the federal government. Building that extended cyberenterprise now is indispensable to our ability to deter and defeat enemies in cyberspace so that they do not threaten our security, prosperity and way of life.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/dVxMynoPxlw/story01.htm Tyler Durden