Category Archives: China aggression

Pay Your Bills Years in Advance, Negative Interest Rate

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Primer: 

The Federal Reserve System‍—‌also known as the Federal Reserve or simply as the Fed‍—‌is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907. Over time, the roles and responsibilities of the Federal Reserve System have expanded, and its structure has evolved. Events such as the Great Depression in the 1930s were major factors leading to changes in the system.[10]

The U.S. Congress established three key objectives for monetary policy in the Federal Reserve Act: Maximizing employment, stabilizing prices, and moderating long-term interest rates. The first two objectives are sometimes referred to as the Federal Reserve’s dual mandate. Its duties have expanded over the years, and as of 2009 also include supervising and regulating banks, maintaining the stability of the financial system and providing financial services to depository institutions, the U.S. government, and foreign official institutions. The Fed conducts research into the economy and releases numerous publications, such as the Beige Book.

Negative 0.5% Interest Rate: Why People Are Paying to Save

When you lend somebody money, they usually have to pay you for the privilege.

NYT’s: That has been a bedrock assumption across centuries of financial history. But it is an assumption that is increasingly being tossed aside by some of the world’s central banks and bond markets.

A decade ago, negative interest rates were a theoretical curiosity that economists would discuss almost as a parlor game. Two years ago, it began showing up as an unconventional step that a few small countries considered. Now, it is the stated policy of some of the most powerful global central banks, including the European Central Bank and the Bank of Japan.

On Thursday, Sweden’s central bank lowered its bank lending rate to a negative 0.5 percent from a negative 0.35 percent, and said it could cut further still; European bank stocks were hammered partly because investors feared what negative rates could do to bank profits. The Federal Reserve chairwoman, Janet Yellen, acknowledged in congressional testimony Wednesday and Thursday that the American central bank was taking a look at the strategy, though she emphasized no such move was envisioned.

But as negative rates — in which depositors pay to hold money in bank accounts — become a more common fixture, there are many unknowns about what these policies mean for finance, for the economy and even for the definition of money.

These are some of the key questions, and, where we have them, the answers.

So how do negative interest rates work?

It depends. In the cases of interest rate targets set by central banks like the E.C.B. and Swedish Riksbank, they set a negative target rate for banks, and banks in turn pass it along to their customers. The E.C.B., for example, currently has a negative 0.3 percent rate, meaning that when banks deposit money at the central bank overnight, they pay for the privilege.

Banks have different ways of passing the negative rates on to depositors, often framed as fees for keeping money in an account, which is basically negative interest rates by another name.

Bond markets reflect these negative rates, too, including for longer-term government debt. For example, if you bought a two-year Swiss government bond on Thursday, you would have needed to pay a price that resulted in a yield of negative 1.12 percent. Even 10-year Swiss bonds have a negative rate, a sign markets expect below-zero rates to persist in Switzerland for many years to come.

Generally companies that borrow money are viewed as riskier than governments, so they have to pay higher interest rates. Therefore negative-rate corporate debt is still rare. But it has happened, including with corporate bonds issued by the Swiss food giant Nestle.

But don’t people just withdraw cash rather than pay to deposit it at their bank or buy a government bond that will give them back less than they paid?

You’d think, right? This was exactly why economists had long thought that negative interest rates were impossible. It helps explain why central banks first turned to other tools, including quantitative easing, when they saw a need to ease monetary policy despite interest rates that were already near zero.

But it looks as if the convenience of keeping money in a bank account is worth a small negative interest rate or fees for most consumers and businesses, at least at the only slightly negative rates currently in place. Storing and providing security for cash may be more expensive than a small bank charge.

When initial experiments in Switzerland and Sweden didn’t result in mass withdrawals from the banking system, larger central banks in need of easier money moved gingerly in the same direction. They’ll stop when either their economies start to grow or they see more concrete evidence that negative rates are doing more harm than good.

How is this supposed to help the economy?

Pretty much the same way it always is supposed to help the economy when a central bank cuts rates. Lower rates encourage business investment and consumer spending; increase the value of the stock market and other risky assets; lower the value of a country’s currency, making exporters more competitive; and create expectations of higher future inflation, which can induce people to spend now.

We have decades of experience with central banks trying to manage the economy by, for example, cutting bank rates to 2 percent from 3 percent when there is an economic downturn. The shift to negative rate policies is, hypothetically at least, the same, but with a starting point of rates already around zero.

So does it work?

It’s hard to say with any certainty yet. At a minimum, it seems to have an effect of lowering the value of a currency, which makes export industries very happy. It’s less clear whether it can help create sustained economic growth, particularly when the hard-to-calculate downsides are factored in.

What are those downsides?

The global financial system is built on an assumption of above-zero interest rates. Going below zero could cause damage to the very architecture by which money and credit zoom through the economy, and in turn inhibit growth.

Banks could cease to be viable businesses, eliminating a key way that money is channeled from savers to productive investments. Money market mutual funds, widely used in the United States, could well cease to exist. Insurance companies and pension funds could face their own major strains.

In a speech last year, Hervé Hannoun, then the deputy general manager of the Bank for International Settlements, even argued that this could “over time encourage the use of alternative virtual currencies, undermining the foundations of the financial system as we know it today.”

Is the Federal Reserve going to do this in the United States?

Janet Yellen doesn’t think so. But in two days of congressional testimony this week, she also didn’t rule it out.

For one thing, the United States economy, and particularly its labor market, looks to be in stronger shape than that of many others around the world. So the Fed expects to be in interest-rate raising mode this year (though exactly how fast is very much in question). But even if the economy does take a turn for the worse, there’s no certainty that negative rates are the path the Fed would take.

There is a question of whether that would even be legal. It’s not clear if the language of the Federal Reserve Act allows negative bank rates (J.P. Koning, a financial commentator, runs through the legal issues here). Ms. Yellen said in testimony this week that the legality of negative rates “remains a question that we still would need to investigate more thoroughly.”

She also said that “it isn’t just a question of legal authority.”

“It’s also a question of could the plumbing of the payment system in the United States handle it?” she said. “Is our institutional structure of our money markets compatible with it? We’ve not determined that.”

Financial markets do not now price in meaningful odds of negative rates in the United States. Want one modest clue that negative rates can’t be ruled out, though? In its annual stress test of major banks, the Fed asked the firms to figure out what would happen to their finances in a “severely adverse” scenario that included a sharp rise in unemployment and a rate of negative 0.5 percent rate on short-term Treasury bills — in other words, what you’d expect to see if there were a recession and the Fed cut rates well below zero.

Ms. Yellen noted that the rates on Treasury bills could go negative even in the absence of a policy shift by the Fed, as has happened a few times in the past.

So what are some of the weird things that could happen in a world in which negative rates become routine?

The policies in Europe and Japan are still relatively new and involve rates only slightly below zero. But if the policies become long-lasting, or negative rates go much lower, there are a lot of mind-bending ways it could affect routine transactions.

For example, would people start prepaying years’ worth of cable bills to avoid having money tied up in a money-losing bank account? How about property taxes? Would companies and governments put in place new policies prohibiting people from paying their bills too early?

Or consider this: Many commercial transactions now take place with some short-term credit attached — for example, a company that gets a 60-day grace period to pay bills from its suppliers. Would that flip, and suddenly suppliers would prohibit upfront payment and insist that their customers wait 60 days to pay?

Might new businesses sprout up that allow people to securely store thousands of dollars in bundles of $100 bills, or could people buy physical objects as stores of value that the banks can’t charge a negative interest rate on?

“Negative interest rates in Japan is blowing my mind,” said Jose Canseco, the provocative retired baseball player not normally known for his economic musings, on Twitter. And the truth is, he’s not the only one.

China banks may lose 5 times US banks’ subprime losses

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Yellin’s testimony includes China as the big worry.   

China is big concern

Yellen didn’t mince words about China: its economy is slowing down and uncertainty is rising about how much China will devalue its currency, the yuan.

A weak yuan has major implications for global trade. Yellen firmly blames the uncertainty of China’s currency for the rise in global growth fears.

“This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth,” Yellen said.

Add in spooky dude, George Soros:

Bass: China banks may lose 5 times US banks’ subprime losses in credit crisis

CNBC: A Chinese credit crisis would see the country’s banks rack up losses 400 percent larger than the hit U.S. banks took during the subprime mortgage crisis, storied hedge fund manager Kyle Bass has warned in a letter to investors.

“Similar to the U.S. banking system in its approach to the Global Financial Crisis (GFC), China’s banking system has increasingly pursued excessive leverage, regulatory arbitrage, and irresponsible risk taking,” Bass, the founder of Dallas-based Hayman Capital, wrote in the letter dated Wednesday.

“Banking system losses – which could exceed 400 percent of the U.S. banking losses incurred during the subprime crisis – are starting to accelerate.”

China’s banking system has grown to $34.5 trillion in assets over the past 10 years, from a base of $3 trillion, wrote Bass, who is famed as one of the few major investors to correctly call the U.S. subprime housing collapse that kicked off the 2008 global financial crisis. That prescience earned him a mention in Michael Lewis’ book “Boomerang,” which was about the European credit crisis.

This expansion in the banking system’s asset base was fueled largely by rapid credit expansion, Bass wrote, that helped fund the huge, and often inefficient, infrastructure spending program that has propped up China’s growth.

“China’s [banking] system is even more precarious when we realize that, even at the biggest banks, loans are not made to borrowers based on their ability to repay,” he wrote. “Instead, load decisions are political decisions made by the state.”

Add to this the danger posed by China’s shadow banking system – made up of instruments Bass claimed the country’s banks used to subvert restrictions on lending – and the upshot was there were “ticking time bombs” in China’s banking system, the hedge fund manager explained.

“Chinese banks will lose approximately $3.5 trillion of equity if China’s banking system loses 10 percent of assets,” Bass wrote. “Historically, China has lost far in excess of 10 percent of assets during a non-performing loan cycle.”

He noted that U.S. banks lost about $650 billion of their equity throughout the global financial crisis.

The letter said that the Bank for International Settlements (BIS) estimated that Chinese banking system losses from the 1998-2001 non-performing loan cycle exceeded 30 percent of gross domestic product (GDP).

“We expect losses in this cycle to exceed prior cycles. Remember, 30 percent of Chinese GDP approaches $3.6 trillion today,” he warned.

Bass wrote that he expected the massive losses to force Beijing to recapitalize Chinese banks and sharply devalue the yuan.

“China will likely have to print in excess of $10 trillion worth of yuan to recapitalize its banking system,” he said. “By the time the loss cycle has peaked, we believe the renminbi will have depreciated in excess of 30 percent versus the U.S. dollar.”

The hedge fund manager didn’t return an email sent outside office hours requesting comment on the investor letter, which the Wall Street Journal reported was the first he had sent in two years.

Bass’ sentiments on the yuan aren’t new, with the Wall Street Journal reporting earlier this month that he was among the money managers making bearish bets on the currency.

The dollar has already fallen about 5.9 percent against the yuan since August, when a sharp devaluation by the People’s Bank of China (PBOC) roiled markets; the greenback was fetching around 6.5710 yuan on February 5, the last day of trade before China’s markets closed for a week-long Lunar New Year holiday.

The PBOC has introduced a slew of measures to arrest, or at least slow, declines in the currency in the hope of achieving an orderly depreciation.

The central bank has asked banks making yuan loans abroad to set aside more in reserves and has also hoovered up yuan in Hong Kong, a key market where the bearish bets have been made, effectively making it more expensive for traders to borrow the yuan to make these trades.

China’s state-owned publications have also chipped in with stinging editorials admonishing greedy speculators for betting against the currency. Prominent investor George Soros was recently likened to a “crocodile” that had declared “war” on China for suggesting while at the World Economic Forum in Davos, Switzerland, that China’s economy was headed for a hard landing.

In his letter, Bass casts the attacks on Soros as confirmation of his views.

“China’s public reaction in its state media to George Soros’ comments in Davos was in character for a country that is on the precipice of a large devaluation,” Bass said.

While many have pointed to China’s large – albeit shrinking – pile of $3.23 trillion in foreign-exchange reserves as a defensive wall against a crisis, Bass says that’s simply not enough.

He estimates China really only has around $2.1-2.2 trillion in reserves after adjusting for several factors including about $700 billion that could be tied up in China’s sovereign wealth fund CIC. That’s below his estimate of the $2.7 trillion minimum China would need to effect a banking sector bailout.

“China’s liquid reserve position is already below a critical level of minimum reserve adequacy,” he said.

Predictions of a Chinese economic disaster have been circulating for a long time; Gordon Chang’s book “The Coming Collapse of China” was published in 2001.

However, the mainland saw economic growth slow to a 25-year low of 6.9 percent in 2015 amid its transition toward a consumption-driven economy and away from its manufacturing roots.

When it comes to positioning for his expectations of a Chinese bank implosion, Bass wrote that he was thinking broad.

“What happens in China will not stay in China,” he said. “We decided to liquidate the majority of our risk assets.”

He did not appear likely to buy back in to the market any time soon.

“The next 18 months will be fraught with false-starts, risk rallies, and second-guessing,” he wrote.

To be sure, some of Bass’ other doomsday bets haven’t yet come to fruition.

For more than five years, he has called for a collapse in Japan government bonds (JGB) as part of a yet-to-materialize full-blown financial crisis there. That trade, dubbed a widow-maker, has so far backfired spectacularly.

Instead of a collapse in JGB prices, they’ve surged, with the benchmark 10-year seeing negative yields for the first time this week. Bond yields move inversely to prices.

Hayman Capital had returns of about 1.7 percent last year, according to a Bloomberg report.

***

TOKYO (AP) — Japan’s main stock index dived Friday, leading other Asian markets lower, after a sell-off in banking shares roiled investors in the U.S. and Europe.

Tokyo’s Nikkei 225 was down 4.8 percent to 14,952.61 after earlier sinking as much as 5.3 percent. Hong Kong’s Hang Seng fell 1.0 percent to 18,364.14. South Korea’s Kospi gave up 1.4 percent to 1,835.01 and Australia’s S&P/ASX 200 fell 1.2 percent to 4,765.30. Shares in New Zealand and Southeast Asia also fell. Markets in China and Taiwan are closed until Monday for Lunar New Year holidays.

Global stocks have been in a slump since the beginning of the year when China’s market, which had been propped up by government buying, plunged dramatically. Concerns about China, however, are now just one of several factors behind the bloodletting.

Iran, North Korea and the Cruz Letter

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The Keys to Iran’s Missiles are in China and North Korea

The latest revelations about Iran’s ballistic missile program make it clear that sanctions on Tehran are pointless unless they’re imposed on China and the DPRK, too. Full story and intelligence here.

Iran space navigation system to be launched  

TEHRAN, Feb. 10 (MNA) – National plan to improve navigation and positioning services will soon become operational with special features.

Iran’s very modern system of navigation and positioning system has been produced by Iran Electronics Industries (IEI) as the executive and with the support of Iran’s National Space Center as one of the subordinate units of the Science and Technology Department of the Presidential Office.

The system aims to provide advanced services to increase life quality of Iranian people and will soon become operational providing the whole country with the possibility to simultaneously exploit three highly-advanced global positioning systems called GPS, GLONAA as well as BeiDou.

Numerous valuable services offered by the system with centimeter accuracy include car navigation, crisis management, social services, mapping, identification of stationary and moving targets, precision farming, urban traffic control, tracking oil and gas pipelines, environmental services, advanced housing and urban development services, customs issues and smuggling prevention, accurate harness of fire, current and advanced insurance services, shipping services and ports, fine weather forecast.

The implementation of the navigation and positioning system will be carried out in three phases in 2016.

****

Sen. Cruz to President Obama: “Strategic Patience” Toward North Korea Isn’t Working

WASHINGTON, D.C. – U.S. Sen. Ted Cruz (R-Texas) today sent a letter to President Barack Obama that expresses grave concerns about the administration’s North Korea policy and outlines alternative policy actions to address North Korea’s illegal nuclear tests, strengthen U.S. national security and return greater stability to East Asia and the Korean Peninsula.

Cruz sent the letter today after announcing he will vote for the North Korea Sanctions Enforcement Act of 2016 (H.R. 757), which would impose nuclear weapons-related sanctions on North Korea. The Senate is expected to pass the bill this evening.

“I write to express deep concern regarding [President Obama’s] policy of ‘strategic patience’ toward the Democratic People’s Republic of Korea (DPRK), particularly in light of their recent nuclear test and satellite launch that also served as a long-range ballistic missile test,” wrote Sen. Cruz. “Your administration has, for too long, hoped to achieve denuclearization through failed diplomacy and limited sanctions. The nuclear tests of May 2009, February 2013, and January 2016 suggest that ‘strategic patience’ with a country still officially at war with us is not working.”

Cruz’s letter to Obama lists five actions rooted in American strength that might actually modify the hostile and aggressive behavior of North Korea and its protectors:

1) Fully enforce U.S. laws. The U.S. needs to sharpen the choices for North Korea by raising the risk and cost for those who choose to violate laws and resolutions.

2) Stop protecting China. It is time to tell the truth about China: the PRC is not our partner in denuclearizing the Korean peninsula. Lax enforcement of U.S. laws have made China complacent in policing the illicit financing of regimes like North Korea and Iran, thus becoming complicit in their proliferation.

3) Rebuild the U.S. Navy. The U.S. must renew its commitment to force projection to protect our allies and deter our enemies.

4) Deploy a Terminal High Altitude Area Defense (THAAD) unit to better protect U.S. troops and critical targets in South Korea. This system is more capable than any ballistic missile system that South Korea has or will have for decades. And if the U.S. is serious about defending South Korea, we must openly confront China’s support for North Korea.

5) Relist North Korea as a state sponsor of terrorism. North Korea’s cyber attack and accompanying threats of a “9/11-type attack” fulfill the legal definition of international terrorism – “violent acts or acts dangerous to human life that…appear to be intended to intimidate or coerce a civilian population” (18 U.S. Code § 2331).  Removal from the list has resulted in no improvement in the behavior of the DPRK, and we should end the dangerous fiction that they are not engaged in international terrorist activities.

The full letter can be viewed here and below.

February 10, 2016
President Barack Obama
The White House
1600 Pennsylvania Ave. NW
Washington, DC 20500

Dear Mr. President:

I write to express deep concern regarding your policy of “strategic patience” toward the Democratic People’s Republic of Korea (DPRK), particularly in light of their recent nuclear test and satellite launch that also served as a long-range ballistic missile test. Your administration has, for too long, hoped to achieve denuclearization through failed diplomacy and limited sanctions. The nuclear tests of May 2009, February 2013, and January 2016 suggest that “strategic patience” with a country still officially at war with us is not working.

I would like to propose five alternative actions rooted in American strength that might actually modify the hostile and aggressive behavior of the DPRK and its protectors:

1. Fully enforce U.S. laws. In September 2015, Secretary Kerry warned of “severe consequences” if North Korea “refuses to live up to its international obligations.”[1] It is well past time to impose those consequences. History demonstrates that the United States is able to dictate the agenda when dealing with hostile regimes and improve global security through our leadership. Unilateral U.S. actions against Iran, combined with diplomatic pressure, led other nations to impose their own financial and regulatory measures against Tehran. Collectively, the international sanctions isolated Iran from the international banking system, targeted critical Iranian economic sectors, and forced countries to restrict purchases of Iranian oil and gas, Tehran’s largest export.

The United States should use its actions against Iran as a model for imposing the same severity of targeted financial measures against North Korea. Washington should no longer hold some sanctions in abeyance, to be rolled out after the next North Korean violation or provocation. There will be little change until North Korea feels the full impact of sanctions and China feels concern over the consequences of Pyongyang’s actions and its own obstructionism. The U.S. needs to sharpen the choices for North Korea by raising the risk and cost for those who choose to violate laws and resolutions. Actors who have thus far been willing to facilitate North Korea’s prohibited programs and illicit activities should not be exempt for political convenience. If Congress passes additional sanctions in the coming days, my hope is that, in addition to signing them into law, you would faithfully and consistently execute such targeted measures in a non-discriminant manner.

2. Stop protecting China. It is time to tell the truth about China: the PRC is not our partner in denuclearizing the Korean peninsula. Lax enforcement of U.S. laws have made China complacent in policing the illicit financing of regimes like North Korea and Iran, thus becoming complicit in their proliferation. China has enabled DPRK arms shipments to Iran to travel unimpeded through Chinese ports[2] and airspace.[3] It has facilitated the shipment of chemical reagents and protective suits from North Korea to Syria.[4] It has allowed transfer of arms-related material to Syria.[5]

Perhaps the most egregious act was the Chinese transfer of transporter-erector-launchers (TELs) to North Korea in 2011. Upon receipt of these vehicles, North Korea modified them with the ability to launch the KN-08, an intercontinental ballistic missile capable of reaching the West Coast of the United States from a road-mobile launch platform. This capability poses a nuanced challenge to our ground-based interceptors deployed in Alaska and California. A subsequent report from the United Nations confirmed that Chinese entities were responsible for the sale of these vehicles.[6] On April 7, 2015, Admiral Bill Gortney, the Commander of North American Aerospace Defense Command, confirmed that the KN-08 was operational. Because of China, North Korea has a modern mobile missile launcher that increases its ability to threaten Alaska, Washington, Oregon, and California with a road-mobile nuclear strike.[7]

3. Rebuild the U.S. Navy.

The foundation of the United States’ ability to project power overseas is the aircraft carrier, and its supporting Carrier Strike Group. One would hope that your annual budget submission to Congress would reflect the centrality of the aircraft carrier to America’s defense of our national interests and our allies abroad, but sadly this is not the case. The USS Gerald Ford is over budget,[8] the second ship of the class remains behind schedule,[9] and our Navy has only 272 combatants.[10] The budget you submitted further exacerbates this problem by reducing shipbuilding funds an additional $1.75 billion, as our adversaries expand their presence at sea and increase aggressive rhetoric regarding territorial sea claims.

While Naval force projection has declined under your watch, Japan has invested heavily in its armed forces. Leading the effort to broaden the definition of “self-defense” and expand the military missions Japan would be willing to accept, Prime Minister Shinzo Abe has prudently responded to the threat environment he faces in East Asia. In contrast to your administration, the Japanese government increased defense spending by 2.8% to $42 billion in 2015, which amounted to the largest defense budget in Japan’s history.[11] Your administration has celebrated our ally’s commitment to stability in the region, but I/we fear that your unwillingness to fully fund America’s military to meet its threats will render moot the courageous actions of our friend and ally Japan. The U.S. must renew its commitment to force projection to protect our allies and deter our enemies.

4. Deploy THAAD in South Korea. Last year, your administration approached Seoul with the prospect of deploying a Terminal High Altitude Area Defense (THAAD) unit to better protect U.S. troops and critical targets in South Korea. This system is more capable than any ballistic missile system that South Korea has or will have for decades. The THAAD deployment is wholly in line with China’s stated goal of preserving stability on the Korean peninsula and would not in any way constrain China’s military capabilities. Yet, the PRC reacted aggressively to this prospective deployment. In July 2014, President Xi Jinping warned President Park Geun-hye to “tread carefully”[12] regarding THAAD so it “won’t be a problem between South Korea and China.”[13] Beijing has issued similar warnings after Seoul began publicly discussing the need to improve its missile defenses after last month’s North Korean nuclear test.

I welcome recent progress this week in negotiations with South Korea on THAAD. However, I am concerned that you have not publicly condemned Xi Jinping for attempting to intimidate and blackmail a U.S. ally into rejecting our military assistance. It would be unfortunate if the climate agreement and progressing trade negotiations with the PRC were higher strategic priorities for the United States than standing up to the world’s largest communist state. If the U.S. is serious about defending South Korea, we must openly confront China’s support for North Korea. The U.S. should strongly push back against China’s opposition to THAAD by rebutting its false assertions that the system would impact Chinese security.

A good place to start would be disinviting them from Rim of the Pacific Exercise (RIMPAC) 2016. While speaking in Jakarta on March 20, 2013, you linked participation in these exercises with political engagement: “We have invited the Chinese to participate in the RIMPAC exercise which we host, and we are delighted that they have accepted.  We seek to strengthen and grow our military-to-military relationship with China, which matches and follows our growing political and economic relationship.”[14] Given China’s complicity in North Korea’s nuclear capability, stonewalling of missile defense in South Korea, and its aggressive actions in the South China Sea, I/we believe it is time for the United States to fundamentally reevaluate U.S.-China relations.

5. Relist North Korea as a State Sponsor of Terrorism. One need not look far for justification. North Korea’s cyber attack and accompanying threats of a “9/11-type attack” fulfill the legal definition of international terrorism – “violent acts or acts dangerous to human life that…appear to be intended to intimidate or coerce a civilian population” (18 U.S. Code § 2331).  Removal from the list has resulted in no improvement in the behavior of the DPRK, and we should end the dangerous fiction that they are not engaged in international terrorist activities.

The regime in Pyongyang has not only issued explicit threats against American citizens, but there is also documented evidence that North Korea has shipped arms to Iran. Three intercepted vessels bound for Iran in July 2009 contained North Korean weapons that Western intelligence and Israeli intelligence officials and non-government experts believe were bound for Hezbollah and Hamas.[15] All three ships contained North Korean components for 122 mm Grad rockets and rocket launchers, 2,030 corresponding detonators, and related electric circuits and solid fuel propellant. As you know, Hezbollah and Hamas frequently fire these rockets into Israel. Yet your Administration continues to assert that North Korea is “not known to have sponsored any terrorist acts since the bombing of a Korean Airlines flight in 1987.”[16]

Until such actions are taken, the North Korean threat will continue to metastasize. Their launch last Saturday is further evidence of the escalating danger the DPRK poses to the U.S. and our allies. America must once again lead from a position of strength, rekindling the fear of our enemies and restoring the trust of our friends.

Sincerely,

Ted Cruz

[1] Secretary Kerry, Press Availability With South African Foreign Minister Maite Nkoana-Mashabane, September 16, 2015.

[2] Report of the Panel of Experts established pursuant to resolution 1874 (2009),  United Nations, June 11, 2013 (p. 31),http://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/s_2013_337.pdf.

[3] Ibid (pp. 33-34).

[4] Report of the Panel of Experts established pursuant to resolution 1874 (2009), United Nations, June 14, 2012 (pp. 27-29),http://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/NKorea%20S%202012%20422.pdf.

[5] Report of the Panel of Experts established pursuant to resolution 1874 (2009),  United Nations, June 11, 2013 (pp. 36-38),http://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/s_2013_337.pdf.

[6] Report of the Panel of Experts established pursuant to resolution 1874 (2009),  United Nations, June 11, 2013 (pp. 26-28),http://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/s_2013_337.pdf.

[7] Bill Gertz, “Admiral: North Korea Can Hit U.S. With Long-Range Nuclear Missile,” Washington Free Beacon, October 12, 2015,http://freebeacon.com/national-security/admiral-north-korea-can-hit-u-s-with-long-range-nuclear-missile/.

[8] Christian Davenport, “New Gerald R. Ford carrier class, as predicted, called $13 billion ‘debacle,’” Stars and Stripes, October 1, 2015,http://www.stripes.com/news/navy/new-gerald-r-ford-carrier-class-as-predicted-called-13-billion-debacle-1.371389.

[9] Ibid.

[10] Status of the Navy, as of February 9, 2016,http://www.navy.mil/navydata/nav_legacy.asp?id=146.

[11] Ankit Panda, “Japan Approves Largest-Ever Defense Budget,” The Diplomat, January 14, 2015,http://thediplomat.com/2015/01/japan-approves-largest-ever-defense-budget/.

[12] Yonhap, “China’s Xi Asked Park to ‘Tread Carefully’ over U.S. Missile-Defense System,” August 26, 2014,http://english.yonhapnews.co.kr/national/2014/08/26/73/0301000000AEN20140826002100315F.html.

[13] Chang Se-jeong and Ser Myo-ja, “Xi Pressed Park on Thaad System,” Korea JoongAng Daily, February 6, 2015,http://koreajoongangdaily.joins.com/news/article/article.aspx?aid=3000595

[14] Ashton Carter, “The U.S. Defense Rebalance to Asia,” Remarks as prepared for delivery, April 8, 2013,http://archive.defense.gov/Speeches/Speech.aspx?SpeechID=1765.

[15] Manyin, Mark, “North Korea: Back on the State Sponsors of Terrorism List?” CRS, January 21, 2015,http://www.crs.gov/Reports/R43865?source=search&guid=738771c7105c426fac0c7ad3efa85187&index=4.

[16] “Country Reports on Terrorism 2012,” Department of State, May 30, 2013,http://www.state.gov/j/ct/rls/crt/2012/209980.htm.

 

 

In the first phase, a total of 15 network stations and two data centers will be launched in Tehran as an experiment to collect accurate position information.

 

After the implementation of the first phase in Tehran, the second phase of the project will be implemented in major cities while the third phase the whole country will be covered by the system.

 

The hardware of the system is supposed to be available to users who will only be charged for a very low annual cost

Clapper Breaks with Obama’s Threat Crisis Plank

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North Korea has restarted plutonium reactor: US

North Korea has restarted a plutonium reactor that could fuel a nuclear bomb and is seeking missile technology that could threaten the United States, Washington’s top spy said on Tuesday.

Intel Chief Breaks From Obama Narrative On Iran Deal

DailyCaller: The head of U.S. intelligence believes that Iran’s recent actions speak loudly to its intentions, particularly given the country’s recent provocations since the Iran nuclear deal came into effect.

Testifying to the Senate Committee on Armed Services Tuesday, director of national intelligence James Clapper gave a very somber description of what he sees as Iran’s intentions toward the U.S. now that last summer’s nuclear deal has commenced. In particular, his statements offered little assurance that Iran is acting as an honest actor with the U.S. and the other states involved in last year’s negotiations, or that the nuclear deal will stop Iran from obtaining a nuclear weapon.

“Iran probably views JCPOA [Iran deal] as a means to remove sanctions while preserving nuclear capabilities, as well as the option to eventually expand its nuclear infrastructure,” said Clapper, who also noted that, so far, he sees no evidence that Iran is violating the nuclear deal.

Clapper’s statements stand in stark contrast with those made by President Barack Obama, who lauded the nuclear accord last summer, claiming it would not only stop all of Iran’s possible pathways to a nuclear weapon, but that “under its terms, Iran is never allowed to build a nuclear weapon.” More here.

***

Clapper went into all specifics on the threat matrix both at home and globally. He did not leave anything behind, from cyber wars, space wars, weapons systems, human trafficking, terror organizations, economic instability, migrants, disinformation and drug cartels.

 STATEMENT FOR THE RECORD WORLDWIDE THREAT ASSESSMENT of the US INTELLIGENCE COMMUNITY
February 9, 2016
INTRODUCTION
Chairman McCain, Vice Chairman Reed, Members of the Committee, thank you for the invitation to offer
the United States Intelligence Community’s 2016 assessment of threats to US national security. My statement reflects the collective insights of the Intelligence Community’s extraordinary men and women, whom I am privileged and honored to lead. We in the Intelligence Community are committed every day to provide the nuanced, multidisciplinary intelligence that policymakers, warfighters, and domestic law enforcement personnel need to protect American lives and America’s interests anywhere in the world.
 The order of the topics presented in this statement does not necessarily indicate the relative importance or magnitude of the threat in the view of the Intelligence Community. Information available as of February 3, 2016 was used in the preparation of this assessment.
 
TABLE OF CONTENTS
 
GLOBAL THREATS Cyber and Technology Terrorism Weapons of Mass Destruction and Proliferation Space and Counterspace
 
Counterintelligence Transnational Organized Crime
 
Economics and Natural Resources Human Security
 
REGIONAL THREATS East Asia
China Southeast Asia North Korea
Russia and Eurasia
Russia Ukraine, Belarus, and Moldova The Caucasus and Central Asia
Europe
 
Key Partners The Balkans Turkey Middle East and North Africa 
Iraq Syria Libya  Yemen Iran  Lebanon Egypt Tunisia
 
South Asia
Afghanistan Bangladesh Pakistan and India
Sub-Saharan Africa  Central Africa Somalia South Sudan Sudan Nigeria
 
Latin America and Caribbean
 
Central America Cuba Venezuela Brazil
 

 

 

 

 

Obama’s Final Cyber Offense, Einstein?

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Sheesh, just the name points to a misguided failure since 2008. Einstein has a price tag, $ 5 billion. There are other questions to be asked like what does the NSA have to offer or the countless cyber security professionals in the private sector?

From the White House, there has been a 12 point plan and it has not advanced at all.

In May 2009, the President accepted the recommendations of the resulting Cyberspace Policy Review, including the selection of an Executive Branch Cybersecurity Coordinator who will have regular access to the President.

Meanwhile, hacks are real, dangerous and coming at mach speed. Using old software language such as COBOL speaks volumes as to how antiquated protections are and how dysfunctional all agencies are in maintaining crack-proof.

The Department of Homeland Security appears to be the lead agency for Einstein compliance, what could go wrong and has? The fact sheet from DHS is here.

Obama makes final push to cement cyber legacy

TheHill: President Obama on Tuesday made what is likely his last major push to bolster the government’s digital defenses before leaving office.

As part of the annual White House budget proposal, the Obama administration rolled out a sweeping plan to inject billions of extra dollars into federal cybersecurity funding, establish a new senior federal cyber official and create a presidential commission on cyber that will establish a long-term road map.

The move is likely to complete Obama’s cyber legacy, which will include an historic attention to digital security, unprecedented executive orders on the topic, and shepherding through Congress the largest-ever cyber bill, as well as numerous bruising hacks at federal agencies and allegations that government networks were woefully outdated.

In a release, the White House called the plan “the capstone of more than seven years of determined effort.”

“[Obama] is the first president that is making a big cybersecurity push and I think that’s tremendously important,” Rep. Ted Lieu (D-Calif.), one of Congress’s most prominent cyber voices, told The Hill.

The proposal aims to inject more than $5 billion in new funding across the government to strengthen network defenses that have been repeatedly infiltrated by suspected foreign government spies.

The ask is a 35-percent increase over last year’s allotment of $14 billion, and would put overall federal cyber spending at over $19 billion.

The budget request earmarks $3.1 billion for an “Information Technology Modernization Fund” that the White House described as a “down payment on the comprehensive overhaul” of federal IT systems.

Lieu said this fund could help solve one of the inherent budgeting problems when it comes to defending interconnected networks from hackers.

“What’s important about [the fund] is it can go across agencies and upgrade systems that touch more than one agency,” said Lieu, who sits on both the House Budget and Oversight committees.

Currently, each agency has its own individual cybersecurity budget that can be spent on its network, but that cannot necessarily be expended on portions of the agency’s IT infrastructure at other agencies.

Hackers have exploited this balkanized budgeting process.

Over the summer, suspected Chinese cyber spies cracked into the Office of Personnel Management (OPM), pilfering over 22 million people’s personal information in two separate hacks. The initial intrusion — which exposed roughly 4.2 federal workers’ personnel files — occurred at an OPM database that was housed at the Interior Department.

The OPM hacks also exposed the antiquated legacy systems the government relied on to run its networks.

Congress bashed OPM officials for not fully encrypting all their sensitive data. But the agency’s systems were simply too old to even accept modern encryption, they repeatedly explained.

The network also relied on the dated COBOL programming language, which initially became popular in the 1960s and is now eschewed by younger programmers.

A new federal official will oversee much of these update efforts.

As part of its proposal, the White House is establishing a federal chief information security officer, or CISO. The official will be housed within the Office of Management and Budget (OMB) and report to federal chief information officer, Tony Scott, who oversees government technology.

“This is the first time that there will be a dedicated senior official who is solely focused on developing, managing, and coordinating cybersecurity strategy, policy and operations across the entire federal domain,” the White House said.

Centralizing cybersecurity oversight is an attempt to help overcome the lack of agency-to-agency communication on the subject.

“For a while, I’ve seen the argument that there are too many lines of authority in the federal government on cybersecurity,” said Lieu. “Sometimes it’s not clear who is responsible for what.”

The CISO will also help monitor the government’s digital defense spending, which has been knocked as cost-ineffective.

Recently, a federal watchdog report concluded that the government’s main cyber defense system, known as “Einstein,” was largely ineffectual at thwarting sophisticated hackers. The report echoed long-standing criticism from security experts who say the program is a much-delayed boondoggle that is already obsolete.

Federal officials insist the system is in its final phase of implementation and will soon serve as a platform to add on leading cyber tools.

This budget infusion and new federal CISO will with these technology updates, the White House said.

The proposal also includes a robust research and public awareness component.

In a bid to build a bridge to the next administration, Obama is launching a “Commission on Enhancing National Cybersecurity.”

The administration is directing a bipartisan group of lawmakers to appoint top industry representatives and leading technologists to the commission. The group will be tasked with taking the long view.

“The commission will make recommendations on actions that can be taken over the next decade to strengthen cybersecurity in both the public and private sectors while protecting privacy,” the White House said.

Security experts almost unanimously agree that one of these actions will be eliminating the traditional online password.

Since 2011, the White House has been trying to push people away from passwords. Tuesday’s plan includes a last bid to encourage stronger people to adopt stronger login practices.

The proposal creates a new public awareness campaign that includes leading tech firms such as Google, Facebook and Microsoft.

“By judiciously combining a strong password with additional factors, such as a fingerprint or a single-use code delivered in a text message, Americans can make their accounts even more secure,” the White House said.

The proposal is likely Obama’s concluding statement on cybersecurity.

During his presidency, cybersecurity has gone from a fringe issue to one that most leaders acknowledge is vital to national and economic security. The topic received an increasing amount of attention in all but Obama’s final State of the Union address.

In recent years, the U.S. has seen the dramatic rise of global cyber crime syndicates that have pillaged banks, department stores and hotels.

According to an October report from Hewlett Packard and the Ponemon Institute, cyber crime costs the average American firm $15.4 million annually, up 82 percent over the last six years. By 2019, it’s believed the cost of data breaches will reach $2.1 trillion globally.

Digital adversaries such as China, Russia, Iran and North Korea have also swooped in unexpectedly, plundering health insurers, airlines, nuclear plants, government agencies and, most memorably, a major movie studio.

Even terrorist groups such as the Islamic State in Iraq and Syria (ISIS) are causing fears by hijacking high-profile twitter accounts and digitally defacing websites around the world.

These trends are bound to continue after Obama leaves the White House, but this ultimate cyber thrust could help cement his reputation as the first president to actively address the digital security challenge.

“If we can get this through, the funding, I think that would be very positive for his legacy,” Lieu said. “This is not just a federal government problem, it’s endemic in the private sector.”