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Dedicated to He who proclaims true Liberty (Isaiah 61:1), a cause worthy of our lives, our fortunes, and our sacred honor.
Contents
Introduction
Chapter One
A World of Risk
Chapter Two
This Time Is Different
Chapter Three
Making It Personal
Chapter Four
What to Do When Crisis Strikes
Chapter Five
The Gold Rush
Chapter Six
What about Stocks?
Chapter Seven
What’s a Bond Bubble?
Chapter Eight
Beyond the Dollar: Why Money in the Mattress Is a Bad Idea
Chapter Nine
Guaranteed Investments
Chapter Ten
Hedge Funds and Other Out-of-the-Box Investments
Chapter Eleven
A Sane Strategy for an Insane World
Chapter Twelve
There Is Hope
Appendix
Preparing Your Family
Acknowledgments
Notes
Index
Introduction
More than five years ago, I alerted the Pentagon that a war was under way. It was a new kind of war—unlike any we were prepared to face. And it almost ended our way of life, although few understood that reality at the time or since.
Our enemies have telegraphed the how and why of this new kind of war for almost a decade. The Chinese People’s Liberation Army even produced a book, Unrestricted Warfare, about new techniques to defeat a superpower, mocking our inability to recognize, let alone address, the threat. One of the best ways to break America, the Chinese know, is to hit our economy by waging financial warfare.
The 9/11 attacks—direct and physical—took a page from the Chinese PLA playbook. Unrestricted Warfare specifically mentions attacking America by blowing up the World Trade Center,1 and Osama bin Laden acknowledged that his primary aim was to weaken our financial system.2
The second attack was subtler but more devastating. The first sign of the looming battle was the rapid and unprecedented run-up in oil prices. At the start of 2007, oil was trading for about fifty dollars per barrel on international markets. By June 2008 the price had soared to almost $150 per barrel despite a slowing global economy. Hundreds of billions of dollars flowed from the West to the Middle East, weakening us financially at the worst possible time—just as a housing bubble was about to burst. What drove up prices? Some blame China’s economic growth, although Chinese demand accounted for only a small part of the price increases. In fact, massive purchases of “paper oil” in the financial markets, much of it by Middle Eastern sovereign wealth funds, pushed prices to unsustainable levels. These orders, hidden behind financial instruments, caused a huge transfer of wealth that nearly crippled our economy. It couldn’t have been scripted better.
Unrestricted Warfare prescribes other stealthy financial attacks, including a man-made stock market crash. That is where my Pentagon warnings began—in the frightening days of September 2008. The ensuing financial panic and stock market decline—the worst since the Great Depression—bore all the hallmarks of an economic attack. Unnamed entities using financial instruments targeted systemically critical American financial companies, setting off a cascade of failures. Nearly every week new companies were taken to the brink of disaster. When Lehman Brothers went down, the whole system nearly followed.
It was George Soros, the man credited with “breaking the Bank of England” and accused of destroying whole economies, who attributed the failure of Lehman Brothers and other mainstay American firms to a “bear raid”—a deliberate attack intended to destroy a company’s stock price and viability.3 It was Soros who explained that the bear raids were conducted using complex financial instruments such as credit default swaps and short selling.4 And it was Soros who recognized that the failure of Lehman almost brought down the entire financial system in one devastating blow.5 Most important, George Soros was the man whom Unrestricted Warfare describes as a model for twenty-first-century financial warfare.6 Soros knew what was happening as it went down. And even though we have no reason to believe that he was behind the bear raids, we do know he was aware and profitably reacted.7
I explained all of this in a formal report to the Pentagon in 20098 and in my last book, Secret Weapon: How Economic Terrorism Brought Down the U.S. Stock Market and Why It Can Happen Again. My conclusions have since been validated by other government reports,9 and a former Treasury official has acknowledged the reality of economic warfare and the targeting of America.10 The Department of Defense has even run a war-game simulation that demonstrated conclusively that properly executed economic attacks could devastate the dollar and destroy our economy.11
So what have we done to prepare? Alarmingly enough, almost nothing. Instead, we have rolled up additional trillions of dollars in new debt, and the Federal Reserve has been pumping out money like crazy. The stage has been set for what I originally described as a Phase Three attack on the U.S. dollar. A substantial devaluation of our currency would leave us, like Greece, at the mercy of creditors and the global financial system. This is where Game Plan begins. The first section provides a “Who’s Who” of American enemies intent on our destruction and fully aware of our vulnerability. I then explain how the next attack may take place and how it would affect you.
The second section is about how to respond as the economic war unfolds. Unfortunately, there’s no way of telling precisely how the next attack will take place. While we can be certain that there will be attacks, it is impossible to predict how the economy and markets will react. Will the next weapon be an electromagnetic pulse that wipes out the electric grid? Will it be a cyberattack that destroys all financial records and data? Or an old-fashioned takedown of the currency, like the one George Soros inflicted on the British pound and perhaps on the Malaysian ringgit?12 While any of these, or some combination, is possible, exactly how and when the attack occurs will make a profound difference in the impact. One type of attack might produce a deflationary depression, while another might cause a hyperinflationary spiral. The national reaction to the attack will influence how damaging it is.
This book is called Game Plan because there is no pat answer for every threat. When a coach prepares his team for the season, he must plan for a variety of opponents and produce a unique strategy for each. My goal is to review the threats and consider a variety of investment and personal options to address them. Should you put all your money in gold? Is it time to abandon stocks? What about the safety of bonds, guaranteed investments, or hedge funds? I will explore each major asset category and consider whether and when it might have a role in protecting your life savings. As George Soros was prepared to profit in spite of the 2008 collapse, you must strategically plan to move as the investment markets respond.
The last section of Game Plan will help you pull together a personalized strategy and give you hope for the future. I will even explore some solutions to problems at the national level. In addition, I’ll share some practical approaches that can provide you with personal confidence as you face the serious challenges of the day. More important, I will discuss some key spiritual truths to sustain us even in the darkest of times.
America was attacked in 2001 and again in 2008. We are still suffering from those attack
s. Secret Weapon explained in detail how the attack of 2008 happened, who was involved, and what would come next. There are many signs that a third attack is imminent. Game Plan is your companion to Secret Weapon, taking the research to the next level, personalizing it for individuals, and providing a strategic path to respond. Let’s get started.
CHAPTER ONE
A World of Risk
On the twelfth anniversary of the 9/11 attacks on America, Osama bin Laden’s successor, Ayman al-Zawahiri, outlined al Qaeda’s current strategy. The London Daily Telegraph reported the terrorist commander’s message:
“We should bleed America economically by provoking it to continue in its massive expenditure on its security, for the weak point of America is its economy, which has already begun to stagger due to the military and security expenditure,” he said, according to SITE, a jihadist monitoring group. “America is not a mythic power and the Americans, after all, are humans who can be defeated, felled and punished.”
Zawahiri urged the Islamic world to “abandon the dollar and replace it with a currency of other countries that are not taking part in the aggression against us.” He also said that Muslims should refuse to buy goods from America and its allies, as such spending only helped to fund U.S. military action in Muslim lands.1
This strategy should come as no surprise. It was bin Laden’s strategy as well.2 And despite the U.S. government’s declaration after bin Laden’s death that al Qaeda was all but defeated, its threat to our economy continues.3 Al Qaeda has been deliberate. As early as 2005, Fouad Hussein, a remarkably well-connected Jordanian journalist, disclosed its strategic timeline.4 The ultimate goal is the restoration of the caliphate by 2020.5 But al Qaeda understands that to accomplish that feat, it must destroy the U.S. economy, attacking America’s infrastructure through cyberwarfare and other means and ultimately collapsing the dollar. As Robert Martinage of the Center for Strategic and Budgetary Assessments (now an undersecretary of the navy) explained in 2008, “This stage ‘will focus on overthrowing regimes by means of direct and fierce clashes with them’ and ‘when the regimes gradually disintegrate, Al-Qa’ida and the Islamic jihad trend will grow persistently.’ Economic warfare will be waged against the United States and the West more broadly—including burning ‘Arab oil’ and conducting electronic attacks against critical infrastructures. Gold is restored as the ‘standard exchange value in international markets,’ leading to the ‘collapse’ of the US dollar.”6
The threat of economic warfare is concerning because it is the next step after overthrowing critical Arab regimes, another long-held al Qaeda goal. In 2005 the plan was to start this political upheaval between 2010 and 2013.7 That schedule lines up almost precisely with the Arab Spring, which began in December 2010, toppling governments in Tunisia, Egypt, Libya, and Yemen and spawning uprisings or protests in Syria, Bahrain, Algeria, Iraq, Jordan, Kuwait, Morocco, and Sudan.8 The conventional view is that these events were democratic uprisings and a repudiation of al Qaeda. To the contrary, each of these uprisings has furthered al Qaeda’s goals,9 and there is clear evidence of al Qaeda’s involvement among the so-called “freedom” fighters.10 Make no mistake—the Arab Spring is an important part of al Qaeda’s plan. But it’s halfway around the world, and most Americans don’t seem to care. The next step, however, suggests cyberattacks on our economy and an attempt to destroy the dollar. Such blows, if successful, would destroy American power and cripple our way of life.
Al Qaeda is not alone in recognizing America’s economic vulnerabilities. Russia, China, Iran, North Korea, Venezuela, and a host of other regimes have at one time or another suggested that America could be taken down by economic warfare. We can actually point to cases in which they were willing to test the proposition.
In the middle of the afternoon on April 23, 2013, the Standard & Poor’s 500 index mysteriously fell sharply, wiping out $121 billion of value in about one minute. There were no economic announcements, and nothing was fundamentally wrong. Instead, the Syrian Electronic Army hacked the Associated Press’s Twitter account and tweeted a false rumor of damage to the White House. The hoax, fortunately, was revealed quickly, and the market rebounded in minutes.11 There are dozens of “flash crashes” each day, actually, though usually limited to a single stock.12 Despite these mysterious drops, the stock market has recovered after hitting a post–financial crisis low in March 2009, reaching record highs in 2013. So no harm, no foul?
The fact is that our global markets are highly vulnerable. They have been for years. That vulnerability allowed the market’s collapse in 2008 and the economic decline from which we still suffer. And it could lead to something far worse if we do nothing. In my first book, Secret Weapon, I warned, “America stands on the brink. It stands on the brink because of government overspending and our colossal national debt. It stands on the brink because of manipulation, failed regulations, and predatory trading on our financial markets. It stands on the brink because of terrorism threats and covert moves against us by hostile foreign powers.”13
Unless America took corrective action, I warned, we would be leaving ourselves open. “This is a national security issue, not a partisan one—and we have our work cut out for us. As a nation, we must acknowledge the risks of economic warfare and financial terrorism and seriously address them. The future of our currency, our economy, and our way of life may depend on it.”14
We haven’t acknowledged those risks. We haven’t done the work. And we remain open to being hit.
The War We Are Fighting
A new world war—an economic war—is under way, but America’s arrogance has kept us from realizing it. Like the Cold War, it isn’t fought with guns and bombs. And despite having the largest economy in the world, we remain woefully vulnerable.
I spent five years after the 2008 financial crisis educating policymakers, the defense establishment, and the intelligence community about the economic war. After dozens of high-level meetings, some disconcerting realities became clear. First, few in our government had even considered the risks I was describing. The political elite can’t imagine that anyone would want to harm the American economy. They assume that everyone in the world shares their basic motivation—the acquisition of material wealth—and sees the American economy as the goose that lays the golden egg. No rational person would try to harm it, because doing so would impoverish everyone. While that may have been the case in the rebuilding years after World War II and again following the collapse of the Soviet Union, it is certainly not true today. Most of the world now sees America as a failing but arrogant superpower creating more risk than reward for the world as a whole. America’s collapse seems inevitable, and they are positioning themselves to profit from it, or at least to avoid the damage.
Second, most of the people in our national leadership with whom I shared the evidence were convinced, but they shared with me the sad reality that not a single American agency was responsible for addressing this threat, let alone prepared to do so. The Department of Defense isn’t prepared, and neither is the Treasury, the Securities and Exchange Commission, the FBI, the CIA, or the Defense Intelligence Agency.
Finally, it became obvious that at the highest levels of the chain of command, there is an unwillingness to admit even the existence of the threat, let alone deal with it. This too is based on arrogance and cowardice. The political implications of acknowledging that a global economic war is under way are a threat to both Democrats and Republicans. So the nation remains in a state of agitated ignorance, unaware of the emerging storm, yet sensing that something is wrong.
This is not to say that I made no progress in my attempt to rouse our slumbering defenders. My team persisted until the House Armed Services Committee invited us to provide language for the Defense Authorization Act requiring the DOD’s Office of Net Assessment to review my 2009 Pentagon report and respond by a specified date.15 This was a considerable accomplishment, as Net Assessment and its director, Andy Marshall, have long been considered the top strategists
in the Pentagon.16 I met several times with Mr. Marshall and his top lieutenants.
We had hoped that the findings of this report would awaken America to a very serious danger. The law required that the report be released in late 2011, allowing the voters to assess the information before the national elections in 2012. Unfortunately, the report was held up for months. When I asked the reason for the unusual delay, I was told that there were fears that the findings might be used as “a political weapon.” The report was not released until early 2013, and even then, it was classified and kept from the public. Now the respected Office of Net Assessment itself is on the chopping block.17
I later learned from a For the Record investigative report that another division in the Pentagon, U.S. Special Operations Command (SOCOM), also hired a respected defense contractor to look at my 2009 report and either validate or disprove it: “As For the Record was preparing to file this story, our investigative Producer was contacted by a Naval Officer serving in Special Operations, one day before he was resigning his commission. He said he ordered a forensic investigation into the 2008 crash. It was conducted by a military contractor with expertise in global finance and data solutions. It was done independently of Kevin Freeman’s study. That report concluded ‘There is overwhelming evidence that China and Russia launched economic attacks against the United States in 2008.’”18
The report for SOCOM was also withheld from the public, but however much our political and military leadership might wish the subject of financial terrorism would go away, the threat is too serious for the intelligence community to ignore. In the 2012 edition of its quadrennial Global Trends report, the National Intelligence Council (which provides long-term strategic analysis to the director of national intelligence) devotes a section to “lethal technologies,” where it warns of economic and financial terrorism:
Potential cyberwarfare scenarios include coordinated cyber-weapon attacks that sabotage multiple infrastructure assets simultaneously. One scenario involves a case where power, the Internet, cash machines, broadcast media, traffic lights, financial systems, and air traffic software simultaneously failed for a period of weeks. The trends in cyberattacks so far suggest that although some computer systems are more secure than others, few, if any, systems can claim to be completely secure against a determined attack. For some attackers, cyberwarfare offers other advantages that have seldom been the case for most warfare: anonymity and low buy-in costs. These attributes favor the employment by disaffected groups and individuals who want to sow mayhem.19
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