[Infowarrior] - Pentagon preps for economic warfare

[Richard Forno]

  Pentagon preps for economic warfare
By: Eamon Javers
April 9, 2009 04:18 AM EST

http://www.politico.com/news/stories/0409/21053.html

The Pentagon sponsored a first-of-its-kind war game last month focused  
not on bullets and bombs — but on how hostile nations might seek to  
cripple the U.S. economy, a scenario made all the more real by the  
global financial crisis.

The two-day event near Ft. Meade, Maryland, had all the earmarks of a  
regular war game. Participants sat along a V-shaped set of desks  
beneath an enormous wall of video monitors displaying economic data,  
according to the accounts of three participants.

“It felt a little bit like Dr. Strangelove,” one person who was at the  
previously undisclosed exercise told POLITICO.

But instead of military brass plotting America’s defense, it was hedge- 
fund managers, professors and executives from at least one investment  
bank, UBS – all invited by the Pentagon to play out global scenarios  
that could shift the balance of power between the world’s leading  
economies.

Their efforts were carefully observed and recorded by uniformed  
military officers and members of the U.S. intelligence community.

In the end, there was sobering news for the United States – the  
savviest economic warrior proved to be China, a growing economic power  
that strengthened its position the most over the course of the war-game.

The United States remained the world’s largest economy but  
significantly degraded its standing in a series of financial  
skirmishes with Russia, participants said.
See also

     * Parental rights: The new wedge issue
     * Fed judges are fed up
     * U.S. could join direct talks with Iran

The war game demonstrated that in post-Sept. 11 world, the Pentagon is  
thinking about a wide range of threats to America’s position in the  
world, including some that could come far from the battlefield.

And it’s hardly science fiction. China recently shook the value of the  
dollar in global currency markets merely by questioning whether the  
recession put China’s $1 trillion in U.S. government bond holdings at  
risk – forcing President Barack Obama to issue a hasty defense of the  
dollar.

“This was an example of the changing nature of conflict,” said Paul  
Bracken, a professor and expert in private equity at the Yale School  
of Management who attended the sessions. “The purpose of the game is  
not really to predict the future, but to discover the issues you need  
to be thinking about.”

Several participants said the event had been in the planning stages  
well before the stock market crash of September, but the real-world  
market calamity was on the minds of many in the room. “It loomed large  
over what everybody was doing,” said Bracken.

“Why would the military care about global capital flows at all?” asked  
another person who was there. “Because as the global financial crisis  
plays out, there could be real world consequences, including failed  
states. We’ve already seen riots in the United Kingdom and the Balkans.”

The Office of the Secretary of Defense hosted the two-day event March  
17 and 18 at the Warfare Analysis Laboratory in Laurel, MD. That  
facility, run by the Johns Hopkins University Applied Physics  
Laboratory, typically hosts military officials planning intricate  
combat scenarios.

A spokesperson for the Applied Physics Laboratory confirmed the event,  
and said it was the first purely economic war game the facility has  
hosted. All three participants said they had been told it was the  
first time the Pentagon hosted a purely economic war game. A Pentagon  
spokesman would say only that he was not aware of the exercise.



The event was unclassified but has not been made public before. It is  
regarded as so sensitive that several people who participated declined  
to discuss the details with POLITICO. Said Steven Halliwell, managing  
director of a hedge fund called River Capital Management, “I’m not  
prepared to talk about this. I’m sorry, but I can’t talk to you.”

Officials at UBS also declined to comment.

Participants described the event as a series of simulated global  
calamities, including the collapse of North Korea, Russian  
manipulation of natural gas prices, and increasing tension between  
China and Taiwan. “They wanted to see who makes loans to help out,  
what does each team do to get the other countries involved, and who  
decides to simply let the North Koreans collapse,” said a participant.

There were five teams: The United States, Russia, China, East Asia and  
“all others.” They were overseen by a “White Cell” group that  
functioned as referees, who decided the impact of the moves made by  
each team as they struggled for economic dominance.

At the end of the two days, the Chinese team emerged as the victors of  
the overall game – largely because the Russian and American teams had  
made so many moves against each other that they damaged their own  
standing to the benefit of the Chinese.

Bracken says he left the event with two important insights – first,  
that the United States needs an integrated approach to managing  
financial and what the Pentagon calls “kinetic” – or shooting – wars.  
For example he says, the U.S. Navy is involved in blockading Iran, and  
the U.S. is also conducting economic war against Iran in the form of  
sanctions. But he argues there isn’t enough coordination between the  
two efforts.

And second, Bracken says, the event left him questioning one  
prevailing assumption about economic warfare, that the Chinese would  
never dump dollars on the global market to attack the US economy  
because it would harm their own holdings at the same time. Bracken  
said the Chinese have a middle option between dumping and holding US  
dollars – they could sell dollars in increments, ratcheting up  
economic uncertainty in the United States without wiping out their own  
savings. “There’s a graduated spectrum of options here,” Bracken said.

For those who hadn’t been to a Pentagon event before, the sheer  
technological capacity of the Warfare Analysis Laboratory was  
impressive. “It was surprisingly realistic,” said a participant.

Still, the event conjures images of the ultimate Hollywood take on  
computer strategizing: the 1983 film “War Games” in which a young  
computer hacker nearly triggers a nuclear apocalypse.

The film and the reality had one similarity: The characters in the  
movie used a computer called WOPR, or War Operation Plan Response. The  
computer system used by the real life war-gamers? It was called  
WALRUS, or Warfare Analysis Laboratory Registration and User Website.

© 2009 Capitol News Company, LLC