Spin/ Fear or Not: Intelligence Agencies Predict Governments Failing with a Prolonged U.S. Crisis

Forget about markets collapsing intelligence agencies are saying governments could collapse

WASHINGTON – The economic crisis has trumped bullets and bombs in the intelligence agencies’ latest assessment of threats to the United States.

That shift is a reflection of the depth of the unfolding recession, but also of the progress made in the war against terrorists and the Obama administration’s more expansive definition of national security.

Sounding more like an economist than the war-fighting Navy commander he once was, National Intelligence Director Dennis Blair told a Senate panel Thursday that if the crisis lasts more than two years, it could cause some nations’ governments to collapse.

And a number of allies the United States depends on might no longer be able to afford to meet their own defense and humanitarian obligations, he said.

Blair said the financial meltdown, which started in the United States and quickly infected other countries, already has eroded confidence in American economic leadership and belief in free markets.

“Time is probably our greatest threat. The longer it takes for the recovery to begin, the greater the likelihood of serious damage to U.S. strategic interests,” he told the Senate Intelligence Committee, as Blair’s 49-page statement opened with a detailed description of the economic crisis. It was a marked departure from threat briefings of years past, which focused first on traditional threats and battlefields like Afghanistan, Iraq and Pakistan.

“The primary near-term security concern of the United States is the global economic crisis and its geopolitical implications,” he said in a written statement for the committee.

Progress against terrorists
One reason for the new ranking is progress made in the last year against al-Qaida. A year ago, al-Qaida was said to have reconstituted its operations in the lawless tribal area between Pakistan and Afghanistan. But that has changed.

“Because of the pressure we and our allies have put on al-Qaida’s core leadership in Pakistan and the continued decline of al-Qaida’s most prominent regional affiliate in Iraq, al-Qaida today is less capable and effective than it was a year ago,” he said.

Four top al-Qaida operatives were killed over the last year — partially a result of newly aggressive rules of engagement for U.S. forces on the Pakistan border. The organization has had to promote junior players figured “considerably less skilled and respected” to fill those slots, he said.

He said the organization is far from beat, but said sustained pressure to force al-Qaida out of the tribal areas could hobble the organization.

Al-Qaida remains the greatest direct threat to the United States. He said the U.S. has little insight into al-Qaida’s planned attacks, and noted that recruitment of Westerners since 2006 for al-Qaida training in the tribal area makes detection of potential terrorists even more difficult.

The situation in Afghanistan, however, has deteriorated, particularly in the east, south and northwest, and the Taliban insurgency has expanded despite U.S. and international efforts to fight them, Blair acknowledged. Much of the blame falls on the government in Kabul, which has been unable to provide basic services and gainful employment. Blair said that erodes its legitimacy and increases the influence of warlords and the Taliban.

But Afghanistan cannot improve without Pakistan taking control of its border region and providing its own economic development and basic services, he said.

Iran’s nuclear threat
He said Iran continues making progress toward having a nuclear weapon, possibly as soon as next year.

Iran last week launched its first small satellite with a multistage rocket, technology that could be used to make a long-range weapon.

“If they put resources on it they can make a serious missile program,” Blair said.

“Iran is clearly developing all its components of a deliverable nuclear weapon program,” Blair said.

That weapon is not inevitable, he said. It is possible the international community could put together a package of incentives and security guarantees that would dissuade Iran.

Blair also warned of the growing availability of biological weapons, and said terrorist attacks against U.S. interests in East Africa are likely in the next year.

Blair also reported the cascading threats that could flow from global climate change; struggles for energy resources, food and water; an exploding population; and the threat to U.S. information networks from hackers.

He said most attacks on U.S. networks originate from Internet addresses in Russia and China. The capabilities reside in both the military and civilian realms. He declined to say whether the Russian government works with organized crime hacker networks to launch attacks.

Have you heard of Double Cross to Hell ? A Fear Experiment conducted in the 1930’s to observe the psychological effects on people.

2X2L – double cRoss to hell

Council on Foreign Relations Experiments in Fear

At 8:00 PM Eastern Standard Time, on the evening of October 30, 1938, the night before All Saints Day now generally celebrated as Halloween, an estimated six million Americans listened to the famous Orson Welles broadcast, WAR OF THE WORLDS, describing an invasion from Mars. An estimated one million responded with sustained credulity and fear. Thousands responded with sheer panic.

The broadcast was a psychological warfare experiment conducted by The Princeton Radio Project. The Rockefeller Foundation funded the project in the fall of 1937. An Office of Radio Research was set up with Paul F. Lazarsfeld as director, and Frank Stanton and Hadley Cantril as associate directors. Cantril used a special grant from the General Education Board to study the effects of the broadcast. Cantril published the study as a book titled “THE INVASION FROM MARS – A STUDY IN THE PSYCHOLOGY OF PANIC.” It contains a complete script of the broadcast. The book is one of a series of studies sponsored by the Federal Radio Education Committee.1

Fear Factor

WASHINGTON (Reuters) – President Barack Obama may think words like “catastrophe,” “crisis” and “disaster” help sell his economic rescue plans, but U.S. history has shown that scare tactics can backfire.

Having campaigned on a promise of hope and run against what he called President George W. Bush’s “politics of fear,” Obama may be taking a big political risk — for himself and his policies — by resorting to the same tactic.

In pressing Congress and the public to back expensive proposals, Obama has used the well-worn political rhetoric of fear to paint dire scenarios, hoping to persuade skeptics of the need for quick action. It may work, and it may not.

“That end-of-the-world type of rhetoric is not good for business confidence,” said Chris Edwards, director of tax policy studies at the Cato Institute.

Critics accused Bush and Vice President Dick Cheney of scaring the public to push through programs that trod on civil liberties in the name of national security.

Fear of another September 11, 2001, attack was used by Bush and his administration to justify the war in Afghanistan against the Taliban, the Iraq war over weapons of mass destruction, and the creation of the Guantanamo Bay prison to hold hundreds of terrorism suspects without trial.

Obama took office on January 20 facing a different crisis: an economic meltdown that sank venerable financial firms, slashed hundreds of thousands of jobs a month and prompted banks to clamp down on lending, a key engine for economic growth.

To lift the economy out of crisis, Obama introduced an economic stimulus package and crafted a new bank rescue plan.

“TURN A CRISIS INTO A CATASTROPHE”

“Doing a little or nothing at all will result in even greater deficits, even greater job loss, even greater loss of income, and even greater loss of confidence,” Obama said this week. “Those are deficits that could turn a crisis into a catastrophe.”

Last week he wrote in The Washington Post: “Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.”

Using language to play on public fears could scare people into supporting Obama. It could also push them in the opposite direction.

“It cuts both ways. It’s a way of putting pressure on Congress to act, but if people are really fearful, they’re not going to spend money and that lengthens the recession,” Darrell West, director of governance studies at The Brookings Institution said. “It’s a double-edged sword.”

Obama told ABC’s “Nightline” he was aware of the tightrope. “I’m constantly trying to thread the needle between sounding alarmist, but also letting the American people know the circumstances that we’re in,” he said.

Other presidents have played the fear card and some have suffered for it.

President Jimmy Carter sought to address an energy crisis that forced long lines at gasoline stations and produced sky-high inflation in his 1979 “crisis of confidence” speech.

“The energy crisis is real. It is worldwide. It is a clear and present danger to our nation. These are facts and we simply must face them,” Carter said.

He went on to be a one-term president.

“FEAR ITSELF”

By contrast Franklin D. Roosevelt, who assumed the presidency during the Great Depression, tried to lift Americans out of the depths in his inaugural address by saying, “the only thing we have to fear is fear itself.”

He won election four times.

The pessimistic economic news battering the United States has created widespread anxiety but — even if Obama is riding high on a wave of popularity — not everyone believes that the new president has come up with the right response.

The stock market found little comfort in Treasury Secretary Timothy Geithner’s financial plan on Tuesday, posting steep declines despite his warning of “a dangerous dynamic” that must be stopped.

“Our national leaders are promoting fear rather than more confidence that we will work our way through this eventually, no matter how tough the challenges are, and that fear can actually sometimes make things worse,” Republican Senator Jeff Sessions said.

Playing with fear is “high stakes poker” because while the public is very concerned about the economy, only about 20 percent are certain the economic stimulus proposals will work, said Karlyn Bowman of the American Enterprise Institute.

“Right now people really are nervous and very scared, but they are also not very confident about federal government capability,” she said.

White House looking to subsidize mortgages

WASHINGTON (Reuters) – The Obama administration is hammering out a program to subsidize mortgage payments for troubled homeowners who have gone through a standardized re-appraisal and affordability test, sources familiar with the plan said on Thursday.

The program would be a major break from existing aid programs, which are triggered once homeowners fall into arrears.

Under the plan being contemplated, mortgage companies would use a uniform eligibility test even before a borrower becomes delinquent, sources said.

The administration hopes the mortgage industry will soon agree to a set of standards that will allow it to move quickly to modify many home loans.

Sources said government-controlled housing finance companies Fannie Mae and Freddie Mac would play a supporting role in the government’s new plan, but said they are not expected to expand their securitization of loans.

In an interview, James Lockhart, the regulator that oversees Fannie Mae and Freddie Mac, said the mortgage finance industry was eager to have a standardized mortgage modification standard.

“I’ve talked to all the major servicers — both the big bank ones and the big independent ones — and they are all ready to go, they’re chomping at the bit,” Lockhart, the director of the Federal Housing Finance Agency, said. “The other thing they’re asking for standardization.”

Under the plan being mulled, homeowners would have to make a case of hardship to qualify for new loan terms.

Housing policymakers weighed but have for now shelved one plan that would have seen the government stand behind low-cost mortgages of between 4 and 4.5 percent, sources said.

Lockhart said that policymakers are eager to prevent a large drop in home values from their current, deflated levels.

“Just as we had a large overshooting to the upside. Is there any way to prevent going much further to the downside? That will cause tremendous harm to the U.S. economy, to the financial system and it’s not necessary,” he said.

ComScore said E-Commerce was down 3% last year

A year ago, e-commerce was growing at a healthy clip: 19% year-over year growth in Q4 2007, finishing off a strong year. A year later, the market has crashed.

Market research firm comScore says U.S. e-commerce shrank 3% year-over-year in Q4, the first time the market shrank since comScore started measuring it in 2001. Retail e-commerce grew 6% in 2008 to $130.1 billion, but that’s still a huge deceleration.

For better perspective, here’s the market’s free-fall in chart form.

40% out of 70 business leaders are bearish

WASHINGTON (Reuters) – The U.S. economy is in bad shape with no sign of immediate improvement, according to a Business Council survey of chief executives who were lukewarm about Democrats’ stimulus spending plan.

The survey of 71 CEOs released on Thursday found that none expected an economic recovery to begin early this year. Almost 40 percent said they expected the recession to stretch into 2010.

Those surveyed are CEOs at some of the largest U.S. companies.

To survive the downturn, executives indicated they were relying primarily on a variety of cost cuts — reducing discretionary spending (81.7 percent), a targeted hiring freeze (71.8 percent), cost-cutting innovation (60.6 percent) and lay-offs (57.7 percent).

Far fewer were revising existing strategies (11.3 percent), speeding new products to markets (16.9 percent) or otherwise shifting gears to function in a fundamentally changed economy.

In terms of the U.S. government’s efforts to turn the economy around, the CEOs seemed pleased with the Federal Reserve, with nearly two-thirds saying it has had at least some impact. Over 90 percent expect the federal funds rate to be below 1 percent in July 2009, according to the survey.

The Fed has currently set a target range for the overnight bank lending rate at a historic low of zero to 0.25 percent.

The chief executives were less enthusiastic about most spending proposals to promote economic growth, with the exception of infrastructure funding, which 66.6 percent said would be effective.

They were more supportive about middle class tax cuts (71.2 percent) and payroll tax relief for employers (67.2 percent).

According to Gaspirno, (CNBC,) GS held a secret meeting called the GS round table where discussions took place on Geithners speech for a bank recovery.

Apparently many banks attended and the results were some what obvious that the longer Geithner waits the worse the problem gets.

They need to address the underlying mortgages as well as the toxic assets.

This coincides with the White House meeting yesterday over consideration of buying bad mortgages.

Also this might be a response to Realty Trac reporting that Alt-A and Option Arms are beginning to reset come the end of this month.