Jim Meyers at Newsmax via Voltaire Net:
The US Army War College is on the case, ready to handle "unforeseen economic collapse" and the "rapid dissolution of public order in all or significant parts of the US." According to the Washington Post of 1 December 2008, the U.S. military expects to have 20,000 uniformed troops inside the United States by 2011 trained to help state and local officials respond to a nuclear terrorist attack or other domestic catastrophe, according to Pentagon officials.
A new report from the U.S. Army War College discusses the use of American troops to quell civil unrest brought about by a worsening economic crisis.
The report from the War College’s Strategic Studies Institute warns that the U.S. military must prepare for a “violent, strategic dislocation inside the United States” that could be provoked by “unforeseen economic collapse” or “loss of functioning political and legal order.”
Entitled “Known Unknowns: Unconventional ‘Strategic Shocks’ in Defense Strategy Development,” the report was produced by Nathan Freier, a recently retired Army lieutenant colonel who is a professor at the college — the Army’s main training institute for prospective senior officers.
He writes: “To the extent events like this involve organized violence against local, state, and national authorities and exceed the capacity of the former two to restore public order and protect vulnerable populations, DoD [Department of Defense] would be required to fill the gap.”
Freier continues: “Widespread civil violence inside the United States would force the defense establishment to reorient priorities in extremis to defend basic domestic order … An American government and defense establishment lulled into complacency by a long-secure domestic order would be forced to rapidly divest some or most external security commitments in order to address rapidly expanding human insecurity at home.”
International Monetary Fund Managing Director Dominique Strauss-Kahn warned last week of riots and unrest in global markets if the ongoing financial crisis is not addressed and lower-income households are beset with credit constraints and rising unemployment, the Phoenix Business Journal reported.
Sen. James Inhofe of Oklahoma and Rep. Brad Sherman of California disclosed that Treasury Secretary Henry Paulson discussed a worst-case scenario as he pushed the Wall Street bailout in September, and said that scenario might even require a declaration of martial law.
The Army College report states: “DoD might be forced by circumstances to put its broad resources at the disposal of civil authorities to contain and reverse violent threats to domestic tranquility. Under the most extreme circumstances, this might include use of military force against hostile groups inside the United States.
“Further, DoD would be, by necessity, an essential enabling hub for the continuity of political authority in a multi-state or nationwide civil conflict or disturbance.”
He concludes this section of the report by observing: “DoD is already challenged by stabilization abroad. Imagine the challenges associated with doing so on a massive scale at home."
As Newsmax reported earlier, the Defense Department has made plans to deploy 20,000 troops nationwide by 2011 to help state and local officials respond to emergencies.
The 130-year-old Posse Comitatus Act restricts the military’s role in domestic law enforcement. But a 1994 Defense Department Directive allows military commanders to take emergency actions in domestic situations to save lives, prevent suffering or mitigate great property damage, according to the Business Journal.
And Gen. Tommy Franks, who led the U.S. military operations to liberate Iraq, said in a 2003 interview that if the U.S. is attacked with a weapon of mass destruction, the Constitution will likely be discarded in favor of a military form of government.
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Eleanor: Perhaps the White House and the Military are waiting for the other economic shoe to drop, or the next bubble to burst.
Source: Jerome Corsi's Red Alert, a subscription service:
AIG announced a $10 billion loss in derivatives trade. This loss not only signals that AIG may not have hit bottom, but that the derivate market may be another financial bubble about to burst.
Even worse is that the loss is not covered by the $150 billion bailout the federal government has in place for AIG.
Derivatives are contracts where the value is derived from something else. A typical derivative may involve a currency swap or interest-rate swap, contracts in which one financial institution may trade a fixed for a variable interest rate stream of income on some notational, or agreed upon, hypothetical amount of principle – $ 1 billion, for instance.
AIG, before the loss, had $71.6 billion of derivative contracts. This means that almost 14 percent of these complicated bets AIG made have failed.
Put simply, AIG fund managers decided to gamble with AIG capital. With the derivative market nearing a quadrillion dollars, these types of gambles are becoming all too common.
In 2005, the derivatives market was less than $300 trillion. At the beginning of the George W. Bush administration, the derivatives market was insignificant, and the Bank of International settlements was just beginning to explain to capital managers in banks, insurance companies and brokerage firms around the world.
The Wall Street Journal described the $10 billion in AIG derivative losses as involving what is known as "credit-default swaps," or contracts with trading parties known as "counterparties," against losses suffered in mortgage-backed securities.
Derivative contracts are often made by small subsidiary units of the giant insurance companies, banks and brokerage firms.
In the case of AIG, the more than $70 billion in derivative contracts held by the giant insurance company were made by a tiny unit operating as AIG Financial Products, based in the United States and London.
Insurance industry analyst A.M. Best put out a statement on Tuesday saying the $10 billion loss was only in the "notational" amount of the contracts involved, or the hypothetical bet on which the loss-swap was predicated.
That is an admittedly difficult concept to understand, but Best was arguing that even though there was a collapse of $10 billion in the bet on the table, AIG lost only a fraction of that amount, as a "cash settlement" was made with the counterparties to cancel the derivatives contract that failed.
Best reported AIG has canceled more than $46.1 billion of its credit default exposure under terms of the $150 billion federal loan package that is keeping the company solvent.
In a separate article, the Associated Press quoted AIG spokesman Nick Ashooh. He confirmed that the $10 billion loss involved swaps of collateralized debt obligations, or CDOs, where AIG is required to buy the underlying CDO bond when the derivative contract failed.
Because a multi-billion CDO bond will still have some redeemable value after AIG acquires the bond and attempts to take it apart to sell whatever yet solvent pieces of the bond are salable, the losses are still huge, even if not fully determinable for months or years to come.
This means that even if a $1 quadrillion derivative market collapsed, there would not be $1 quadrillion of real losses that have to be absorbed by the parties making the contracts.
Yes, $1 quadrillion in "notational value," or some significant portion of that amount, could evaporate if the derivative bubble bursts.
Still, the amounts that would have to be paid by the counterparty on the losing end of the derivative contract would be in the billions, possibly even in the hundreds of billions to settle the deal gone bad, but not necessarily in the trillions.
No one truly knows how much would be lost in a derivative market meltdown, largely because such a meltdown has never happened.
AIG's announcement of a $10 billion loss in derivative contract notational value means the market is on edge, and the losses yet to be experienced worldwide could be another huge bubble just waiting to burst, as Red Alert continues to warn could happen.
The AIG news is so bad because no financial analyst has ever lived through a massive collapse of a derivative market in which bets are made on as much of a quadrillion dollars in assets that are real or merely hypothecated – to make a deal work.
Red Alert's concern is that a derivative market meltdown will most certainly occur if the U.S. mortgage market continues to correct downward. And if the Dow approaches anywhere near the bottom 6,000 that could happen in the first quarter next year.
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And IF and WHEN this happens, a Russian professor has already predicted the outcome: the United States will divide into six separate nations ... in about 18 months.
Far fetched, I hope, but then again, who could have predicted amazing events of this past year?