Economic Threats to National Security

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Economic Threats to National Security

• Presentation to
• Military Order of the World Wars
• 13 February 2009

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Economic Threats to National Security

• First some common definitions
• EconomicFinancial or monetary values
• ThreatA risk of potential outcome that has
  negative consequences
• NationalUnited States of America
• SecurityThe absence of threats or the
  minimization of risk

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Economic Threats to National Security

• Security is one of the basic motivators for
  personal, corporate and national behavior.
• Maslows Hierarchy of Needs
• Vrooms Theory of Indifference
• Adam Smiths Prudent Economic Man
• American National Self Interests

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Maslows Hierarchy
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Individual, Corporate and National economic
interests

• National Interests
• Based on The Theory of the Greater Good v.
  Individual Rights
• Utilitarianism
• Economic Interest can be framed for individuals
  or organizations as
• Buyer
• Seller
• Owner
• Creditor
• Investor
• Stakeholder
• These interests can differ or even conflict

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Financial Analysis

• As an individual or corporation there are
  generally accepted economic or financial
  relationships that show the degree of security or
  risk
• Debt/Equity ratiosshould be less than 1
• EBITAshould be positive
• Debt/Income ratiosshould be capable of debt
  service
• Leverage (Debt to Owner Equity Ratios)the
  creditor can become the owner

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Economic Threats to National Security

• The National Government and State Governments do
  not use balance sheet accounting.
• They do use annual budgets and cash basis
  accounting
• Income-OutgoSurplus/Deficit
• Deficits must be matched with debt instruments
• It is not academically correct to use the
  financial analysis relationships for individuals
  or corporation to governmental organizations.

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Threats to National Security FBI List

• Terrorism
• Espionage
• Proliferation
• Economic Espionage
• Targeting the National Information infrastructure
• Targeting the U S Government
• Perception Management
• Foreign Intelligence Activities

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Threats to National Security FBI List

• 4. Economic Espionage
• This issue concerns foreign power-sponsored or
  foreign power-coordinated intelligence activity
  directed at the U.S. Government or U.S.
  corporations, establishments, or persons, which
  involves
• The unlawful or clandestine targeting or
  acquisition of sensitive financial, trade or
  economic policy information, proprietary economic
  information, or critical technologies or
• The unlawful or clandestine targeting or
  influencing of sensitive economic policy
  decisions. Either by foreign or domestic
  organizationsJCB

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Economic Threats to National Security

• AARP elements of Economic Security
• Social Security
• Personal Savings and Pensions
• The option of Working past retirement age
• Security from financial harm (fraud)
• Affordable utilities
• Insurance
• Health
• Disability

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MOWW and Economic Threats

• The mission of MOWW is to support Youth
  Leadership Development and National Security
• Youth, especially American Youth, live in a
  relatively secure environment, They have little
  understanding of the AARP concerns or the FBI
  threat list
• Parent Child Relation

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Threats that were real

• the 1973 OPEC (Organization of Petroleum
  Exporting Countries) oil embargo and the economic
  trauma of that decade
• 9/11
• migration flows
• urbanization and cross-border migration
• narcotics trafficking
• HIV/Aids, SARS, Avian Flu
• Impact of oil prices on global economic growth,
• the successful management of the "Y2K

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Threats that could be real

• The US economy suffers a sustained downturn.
  Given the large trade deficit and low domestic
  savings, the US economythe most important driver
  of recent global growth. Key trading partners
  would suffer as the world's largest market
  contracted, and international financial markets
  might face profound instability.

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Threats that could be real

• Europe and Japan fail to manage their demographic
  challenges. European and Japanese populations are
  aging rapidly, requiring more than 110 million
  new workers by 2015 to maintain current
  dependency ratios between the working population
  and retirees.

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Threats that could be real

• China and/or India fail to sustain high growth.
• China's ambitious goals for reforming its
  economy will be difficult to realize
  restructuring state-owned enterprises, cleaning
  up and transforming the banking system, cutting
  the government's employment rolls in half, and
  opening up the economy to greater foreign
  competition. Growth would slow if these reforms
  go awry, which, in turn, would exacerbate
  bureaucratic wrangling and increase opposition to
  the reform agenda.
• India's reform driveessential to sustained
  economic growthcould be sidetracked by social
  divisions and by the bureaucratic culture of the
  public service.

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Threats that could be real

• Emerging market countries fail to reform their
  financial institutions. Although most emerging
  market countries bounced back from the 1997-98
  financial crisis more quickly than expected, many
  have not yet undertaken the financial reforms
  needed to help them survive the next economic
  crisis. Absent such reform, a series of future
  economic crises in emerging market countries
  could dry up the capital flows crucial for high
  rates of economic growth.

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Threats that could be real

• Global energy supplies are disrupted in a major
  way. Although the world economy is less
  vulnerable to energy price swings than in the
  1970s, a major disruption in global energy
  supplies still would have a devastating effect

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Threats that could be real

• The post WWII international system is being
  revolutionized. Not only will new playersBrazil,
  Russia, India and China have a seat at the
  international high table, they will bring new
  stakes and rules of the game.
• The balance of trade transfer of wealth roughly
  from West to East now under way will continue for
  the foreseeable future.

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Threats that could be real

• Unprecedented economic growth, coupled with 1.5
  billion more people, will put pressure on
  resourcesparticularly energy, food, and
  waterraising the specter of scarcities emerging
  as demand outstrips supply.
• The potential for conflict will increase owing
  partly to political turbulence in parts of the
  greater Middle East.

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Threats that could be real

• The chief economic challenge has been
  unemployment. But that is changing dramatically.
  The U.S. economy is still producing thousands of
  service and technology jobs that go unfilled -
  even with the recent downturn in the dot-com
  sector.
• There's a disconnect between the new jobs that
  are being created and the current skill level of
  many people in the workforce.

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What Can I Do?Personal

• Update your will
• Reduce your debt (Dave Ramsey)
• Average family has 175,000 per member
• Reduce impact of estate taxes
• Gifting program
• Survivorship
• Think long term

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What can I do?Business

• Review business elements
• Create Opportunities
• Invest in Stars
• Improve Cash Cows
• Sell Dogs (to your competitors)
• Monitor credit risk elements
• Especially watch for negative impacts of leverage

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What Can I Do? Government

• The role of the Government is to promote general
  welfare and to provide for the common defense

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What Can I Do? Government

• Monetary policy (Federal Bank)
• TARP
• Discount Rate of almost 0
• Fiscal policy (Congress and Executive Branch)
• Recovery act of over 700 B being passed when
  many agencies are still on FY 2009 CRA
• Federal debt per citizen is 35,000/pp
• or about 10,000,000,000,000 total
• Consistent Financial Decisions
• Tax structure (reward success, dont make it more
  expensive/costly to succeed than fail)
• Strong not weak U. S.

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What Can I Do? Government

• IRS/SEC/AICPA
• Mark to Market-asset valuation
• return to rule of sales and depreciation based
  valuation of assets for hold to maturity and
  performing accounts (not for trading accounts)
• Short Sales
• return to rule that short sales can only be made
  after there is an increase in the price Up-tick
  rule

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What Can I Do? MOWW

• Core values are
• Youth leadership development
• Put elements of basic finance and economic
  structure into programs
• National Defense
• Need an industrial base to support
• Defense deter, defense and defeat
• Global economy stable and open trade

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Back up Slides

• References
• The Bureau of Industry and Security Part of
  Department of Commerce
• Defense Industrial Capability and Technology
  Assessments
• Homeland Security Presidential Directive / HSPD-7
  
• Subject Critical Infrastructure Identification,
  Prioritization, and Protection

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National Debt Trends
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National Debt

• Of the 10 T National Debt
• 6 T is in private (U S Bonds)
• 4 T intragovernmental accounts
• What are Intragovernmental Holdings?
• Intragovernmental Holdings are Government Account
  Series securities held by Government trust funds,
  revolving funds, and special funds and Federal
  Financing Bank securities. A small amount of
  marketable securities are held by government
  accounts.
• Recovery Act will bump this up by a lot

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Historical Comparison

• National Industrial Recovery Act (1933)
• Declared unconstitutional
• American Recovery and Reinvestment Act (2009)
• Not yet signed into law