This Brosnan Risk Consultants (BRC) Strategic Intelligence Briefing covers the period from October 25th to November 2nd, 2021 and discusses issues related to recent economic, political, socio-cultural, and/or environmental events that may have an effect on property, travel, commercial, logistical, medical, and retail security throughout the United States or other global markets.
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Where is the budget and economy, and what could this mean?
Earlier this year the Congressional Budget Office (CBO) provided an update to the budget and economic outlook covering 2021 to 2031. The CBO regularly publishes reports presenting projections of what budget deficits, debt, revenue and spending will be for the current and ensuing 10 years.
Given the uncertainty of the current situation, the CBO assessed these estimates to be more important than previous ones so as to inform decision makers. The following is an overview of what they found, with analysis of what the situation could mean.
The Budget:
• Deficit: The federal budget deficit for FY21 is $3 trillion, nearly $130 billion less than in 2020, but triple that of 2019.
o FY21’s deficit will represent 13.4% of GDP – the second largest since 1945 (the largest was 2020).
o Post FY21, deficits are projected to average $1.2 billion from 2021-2031 – 4.2% of GDP. • The 50 year average for GDP is 3.3%.
• Debt: Federal debt, which was $21 trillion (or 100% of GDP) at the end of 2020, will increase to $23 trillion (or 103% of GDP) in 2021.
o In 2007, the federal debt equaled 35% of GDP.
o Projections have the debt increasing to 106% of GDP in 2031.
• Revenues: Projections are higher over this period due to a stronger economy and larger tax base.
The Economy:
• GDP: With the pandemic easing, real GDP is projected to increase by 7.4%. This will average out to 2.8% during the 2021-25 period. This will likely slow down to 1.6% from 2026-31 due to a slower growing work force.
• Jobs: Employment is projected to grow in 2021, eventually surpassing pre-pandemic levels mid-2022. However, in reality this has been in flux due to the large number of people who are not willing to work, leaving a large glut of unfilled positions nationwide.
• Inflation: Inflation is expected to rise sharply in 2021 and then moderately. Despite current rates in excess of 4%, CBO projects an overall rate of 2.8% this year due to supply chain concerns. CBO expects this to balance out in 2022, with inflation dipping to 2%.
• Rates: Interest rates on 10-year Treasury bills are projected to remain low but rise as the economy expands, reaching 2.7% by the end of 2025.
With all this in mind, it is important to examine a number of issues. First, bond rates ordinarily track Treasury rates. So, if we get our financial house in order, as the CBO projected, the Federal Reserve rate and Treasury rates could increase, causing bonds to (again) become attractive investments (and eliminating T.I.N.A. – “There is no alternative to stocks”).
In exploring the aforementioned projections in tandem with political and societal realities, we must take into consideration that Democrats regularly do things that produce more spending than the revenue they bring in (including entitlement increases that are supposed to sunset but often become permanent), and Republicans cut taxes without cutting spending. As such, the actual numbers will likely turn out to be worse.
On current pace, public debt excluding the $6 trillion the Federal Reserve will own if it actually phases out qualitative easing (QE – the Fed buying longer-term securities from the market to increase the money supply and encourage lending and investment) and does not restart, it will be $29.8 trillion in 2031. Apply a traditional 5% Treasury rate, this results in $1.5 trillion of interest. Total tax revenue for 2031 is expected to be $5.96 trillion. So, if ordinary rates existed then, 25% of the nation’s revenue would be necessary to cover interest.
But what if we balanced the budget every year until 2031? Taking into account the QE phase-out and assuming QE does not resume, looking at static figures, applying a 5% interest rate to the debt would produce $850 billion of interest in 2031--14% of anticipated revenue.
So what does all this mean?
• A debt service load of 25% could lead to a great deal of uncertainty, not only domestically vis-à-vis our economy, but also internationally; whereas 14% very likely will not do so. Standing between these two possibilities is the potential for a major problem between now and then, which is not outside the realm of possibility. This could necessitate a huge debt increase, as it is unlikely that we will have balanced the budget after 2021 given the toxic partisanship at the present time.
• Such a major outlay could cause the traditional link between the Fed rate and Treasury rates to break, throwing panic into the markets due to quickly rising rates, potentially causing the stock market to collapse, while also causing great losses to those holding bonds.
• While this is only one of many possibilities, it cannot be understated. In addition, we could see a growing lack of trust in the U.S. economy translate into an ever increasing lack of trust in the U.S. dollar as the currency of choice. While this would not likely happen overnight, the efforts being put into enhancing their own economy and currency in China could provide alternatives for some, and mandatory steps for others who have been forced to accept harsh financial deals with the Chinese for their own reasons.
The Southern Border is Likely to Get Worse in the Next Months – Blame Russia
On November 22nd, 2021, the Nicaraguan government issued an official ministerial note allowing any/all Cubans to travel to their country without visas or other forms of paperwork. In turn, the Venezuelan government agreed to facilitate the travel of these individuals from Cuba to Nicaragua via their national airline, Conviasa.
This new reality could possibly manifest itself into what many in the national security hierarchy view as the next Mariel boatlift (from April to October of 1980, there was a mass emigration of Cubans from Mariel harbor to the U.S. with circa 125,000 Cubans and 25,000 Haitians arriving).
However, unlike the Mariel boatlift, this is not being led by the Cuban-American community. Rather, it is assessed that this has been directed by the Russians, who are looking to exacerbate America’s issues along the border. By inserting not only prisoners from Cuban jails, but also security agents who could form sleeper cells for possible use in the future into these groups, there is a long term potential for significant issues arising from these steps.
This tactic follows Russia’s long-term effort to undermine the U.S. from inside, identifying fissures (i.e. immigration and border issues) and not only leveraging them, but exacerbating them over time via both direct and indirect action.
Can Things Actually Be Worse Than We Thought in the White House? Yes They Can
According to senior officials in the White House as well as across other elements of the Administration, recent press reports about problems between President Biden and Vice-President Harris, and their staffs, is a great understatement. Regardless, it is important to note that this is not new, despite this news only starting to gain attention. From the outset, Biden did not want Harris to have a significant role in governing, but rather was cajoled into accepting her in order to secure his own nomination.
In fact, Biden’s recent announcement that he would again run in 2024 was meant to ensure Harris would not be viewed as the de facto Democratic party candidate, allowing time for another person to gain prominence. While this “person” has yet to be identified, there is no interest by Biden or his camp to have Harris assume such a role at this time.
The Growing Reality of CBRN Threats
In September 2021, a 26-year-old French national, influenced by far-right ideology, was arrested for having successfully manufactured four improvised explosive devices (IEDs) containing uranium in his home. Four months earlier, a 16-year-old boy of Syrian origin, who had been radicalized by the jihadist ideology of the Islamic State (ISIS), was convicted and charged with attempting to carry out an attack in Norway using nicotine poison that he had manufactured in his garage. These two examples highlight the continued threat of so-called ‘garage extremists’ who are lone actors with little to no connection to a wider terrorist network, but are increasingly taking advantage of technological advancements to manufacture homemade chemical, biological, radiological and nuclear (CBRN) weapons.
Technology, Terrorism, and the Online Factor
The most concerning aspect of the French case was the fact that the suspect had purchased uranium dust and other components for the production of the IEDs on the online purchasing platform eBay. He had also learned how to make the bombs through the internet. The ease with which he was able to achieve this dangerous feat, while merely sitting in the comfort of his home, was notable.
The case was similar to an earlier one. In 2018, a Tunisia-born IS sympathizer, Sayf Allah, who was living in Cologne, Germany, had plotted to carry out a biological attack using ricin poison. He had purchased more than 2,000 castor beans, the precursor for ricin poison production, from the internet and had successfully produced 84.3 milligrams of the poison. German security services had stated that Sayf Allah was likely to have been following instructions on how to produce and weaponize ricin and manufacture bombs from the internet. As for the case in Norway, the 16-year-old boy of Syrian origin had spent a substantial amount of time online and Norwegian police had found bomb- making manuals on his mobile phone.
Technology and the proliferation of information online has lowered the difficulty thresholds in manufacturing crude CBRN weapons and obtaining components for them. The fact that the 26-year-old Frenchman succeeded in manufacturing four homemade dirty bombs purely from components bought online and internet tutorials is testament to this threat. Likewise, the 16-year-old boy is believed to have managed to produce nicotine poison mainly from information and resources found online. Despite the fact that he had produced only a small amount of poison, which was of limited lethality, he still had intent. The cases show the degree to which lone actors can capitalize on the availability of information and technological advancements to manufacture unconventional weapons and carry out attacks.
Comparing Far-Right and Jihadist CBRN Cases
With regards to the far-right, CBRN terrorism has predominantly been a lone actor phenomenon as compared to one that is coordinated or directed by any particular group. Although he was believed to have been a member of a far-right group called the National Socialist Knights, the 26-year-old Frenchman was likely to have manufactured the explosives alone. He had reportedly possessed Nazi paraphernalia and a Ku Klux Klan jacket in his home and had plotted to use the homemade explosives against public buildings. There has been no evidence thus far of any group directing his actions.
In contrast, in the jihadist milieu, CBRN terrorism was initially a group-driven phenomenon with both al-Qaeda and ISIS having shown intent in the use and development of CBRN weapons. Over time, however, it became a lone actor phenomenon, in which isolated individuals were being guided in manufacturing and carrying out attacks via online chatting platforms by ‘virtual planners’ located in conflict zones in the Middle East. Now, it has become even more isolated as supporters and sympathizers with minimal connection to jihadist groups such as ISIS are chatting with and motivating each other to commit such attacks.
In the Norway case, the 16-year-old boy had been in contact with a fellow IS sympathizer on the encrypted chat platform Telegram. Norwegian police had discovered that the individual he contacted seemed to have a marked influence on his decision-making and actions in preparing and plotting for a poison attack. The Norway case can be compared to earlier jihadist-inspired CBRN cases, such as the 2017 Sydney chemical attack plot, involving two IS operatives in Syria who virtually directed two brothers of Lebanese origin in Sydney via Telegram to create an improvised chemical dispersion device using highly toxic hydrogen sulfide gas. This shows the shift of jihadist-inspired CBRN plots toward becoming more isolated, as occurred in Norway. Nevertheless, external influence still remains a key factor.
Despite these trends, successfully manufacturing and carrying out a mass casualty CBRN attack is no simple feat due to the various challenges associated with the procurement of certain CBRN precursor agents and the construction of a weapon that is able to deliver the agent in lethal amounts. However, manufacturing crude weapons and carrying out a limited casualty attack with readily available agents, such as plant-based toxins (ricin, abrin), toxic chemicals (nicotine, hydrogen sulfide), and simple dirty bombs is attainable. Perseverance, precision, caution and a little luck would likely do the trick.
While this is something on the radar of security services, as we know – we have to be right 100% of the time, but for the bad guys, even a failure can be a victory.
Concerns of Inflation Drive Release of Strategic Energy Reserve
The Biden Administration recently announced that it will release oil from the Strategic Petroleum Reserve (SPR) to help offset deficits in supply. This decision was made due to an assessment that as the economy starts to rebound from the pandemic, the expected rebound in oil supplies has not taken place to meet demand.
According to recent data, oil production will fall short of demand during Q4 2021 and Q1 2022 by 300,000-400,000 barrels per day on average. As such, this action is being taken despite efforts by the U.S. to encourage OPEC and other non-OPEC countries to increase production until economic conditions are regulated in the post-pandemic period. During OPEC’s 04 November meeting they failed to accept an increase in production along these lines.
The decision to release reserves from the SPR is as much, if not more, a political statement both domestically and internationally than it is one to address the short supply of fuel and its impact on rising inflation. That said, this step is also not a onetime effort, but something that the Administration will do repeatedly if oil producing states to not address this need along the lines discussed by the West.
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