July 1, 2018
Secretary Of State Michael Pompeo
U.S. Department of State
2200 C. Street Northwest
Washington, D. C. 20520
There is a grave national interest that is threatened by the derivative and financial structure outlined below in the report below on the use of Stochastic Control Theory which I have explained in simple English. According to Warren Buffett, the 600 trillion to 1.2 quadrillion world derivative market constitutes a weapon of financial mass destruction. In the discussions outlined below, these derivatives are used to drain at least a trillion dollars a year out of the market in manipulated profits. Aside from this being parasitic and illegal, it is dangerous to the national security of the United States as the shutting of the Straits of Hormuz by Iran can trigger a world depression as these 1.2 trillion of derivatives implode. These profits are protected by the former Attorney General Eric Holder too big to prosecute doctrine.
The 1987 stock market crash was engineered by the manipulation of the stock market by the cash settlement derivative by a giant cartel on Wall St. as explained in the Stochastic piece. It was resolved by forcing all the major players in the cartel to use their massive profits from their manipulation to reverse the crash using the same technique that they crashed it with and this was successful. In the 2008 crash such efforts were not sufficient and we created about 400 years of credit to make sure the monetary aggregates such as M-3 did not implode. 2.7 trillion dollars of which were used as excess reserves to repair the balance sheets of the bankrupt banks by paying them interest above market so that they would not fractionalize for ten years. These excess reserves are now being unwound with a much more limited effect than if they had been fractionalized. This can be offset by lowering reserve requirements as the Chinese are doing. We had to make up for the destruction of credit and it could be handled by papering it over.
If the Straits of Hormuz are closed by the Iranians the shortage of 22% of the world oil supply could not be similarly papered over and it would detonate a collapse of the 1.2 quadrillion derivative market causing a market crash worse than 1933 Weimar Germany. The Bank for International Settlements calculates about 600 billion in total derivatives but Swiss sources say there are at least 1.2 quadrillion with some placing it at 2.5 quadrillion. This relates to an 88 trillion dollar World GDP or a derivative market 28 times the World GDP.
General Barry McCaffrey explained to me below at a lunch at the Harvard Club that the US fleet cannot keep the Straits of Hormuz open as it cannot project sufficient military power to do so and the fleet must leave immediately the entire area in the event of a war with Iran or face total annihilation.
“The Russians have delivered large quantities of Sunburn missiles to Iran designed to fly as low as nine feet at 1,500 miles an hour with dodging capacity. They can be fired from a flatbed truck which makes them mobile. It is perfect for flying into the Straits of Hormuz which is no more than forty miles wide while the actual transit space is about two miles at points. This missile fired from the Iranian shores will punch a hole the size of a room in any ship in the Straits in a fraction of a second. The SS-N-22 sunburn supersonic anti-ship missile has been described as the most lethal missile in the world today designed to defeat the Aegis radar defence system of the United States and subsequent renditions. The Russian SS-NX-26 Yakhont missile (speed Mach 2.9) line the Iranian northern shore. No declassified studies of the ability of these missile to penetrate an aircraft carrier defence have been issued, but it would appear that a large barrage of these missiles cannot be defended against by any known method but jamming equipment.
However, we have the example of the Russian missile (falsely attributed to China) designed with anti-jamming equipment hitting an Israeli frigate (INS Hanit, July 14, 2006) off the shore of Lebanon during the Israeli attack on the Hezbollah. It sailed through the most advanced US and Israeli jamming equipment. While the Israelis denied that they even had turned on their jamming equipment, this did not make any sense to have the INS Hanit jamming equipment turned off when that ship off Lebanon was in a war zone and that they were turned on was confirmed to me by the highest Israel authorities (Mossad) who said they issued this denial at the request of the Americans so that it might not be known that the system on American warships was worthless.”
Many more advanced offensive missiles than this have been since that conversation been acquired by the Iranians as well as advanced anti-missile missiles to deny access to their airspace from enemy aircraft.
“The United States does not have the military power to keep the Straits of Hormuz open and its carrier task forces must flee if they are within range of Russian and Chinese anti-ship missiles lining the coast of Iran which are the most advanced in the world.” General Barry McCaffrey, former Assistant to the Chairman, Joint Chiefs of Staff (JCS); and Director of Strategic Plans and Policy, Joint Chiefs of Staff, in a conversation with David Lifschultz at lunch at the Harvard Club.” In addition, in a conversation with David Lifschultz the chief derivative trader in oil for Goldman Sachs said if the Straits were cut off oil would rise to $500.00 to a $1,000.00 a barrel and then crash the derivative market taking down the world economy as Warren Buffett has pointed out.
Here is a brief summary of the military analysis of General Barry McCaffrey at the Harvard Club lunch with me in which he discusses the strategic inability of the United States to keep the Straits of Hormuz open:
The aircraft carrier became the new weapon of naval war replacing the battleship as the premier weapon for the simple reason that the planes were able to destroy the battleships before the battleships came near enough to destroy the aircraft carriers. This made battleships, cruisers and destroyers obsolete.
The United States ended the World War Two essentially in control of the all the seas and their main instrument of control were these aircraft carrier task forces. The US took this control from the exhausted and bankrupt British Empire and inherited their long built Empire with the empires of Japan, Germany, France and the Netherlands. The control mechanism was the US control of the world financial system established at Bretton Woods constructed around the CHIPS and Swift clearing systems where 88% of world financial transactions has a dollar on one side. The UN and World Court were merely parts of the control mechanism where the small nations rights were really imaginary as we see in the case of Iran.
When the Korean war broke out with the surprise invasion of South Korea in June, 1950, the other key component of the United States winning World War Two of land based air power was quickly nullified as most of the friendly air bases in South Korea were overrun. (Tanks armies were the third component of World War Two military power now nullified by advanced Kornet missiles. Submarines were the third.) The United States Seventh Fleet quickly arrived at the scene to provide that air power to the US and South Korean armies stranded defending at the Pusan Perimeter which saved the day. It was from that moment to the present that air power projection against land targets, rather than the fleet battles in the deep blue water, would be the main justification for aircraft carrier task forces. Naval aircrews from the Seventh Fleet’s Task Force 77 flew 275,000 sorties amounting to 53% of the close air support and 40% of the interdictions sorties in Korea.
Air power was a major factor in World War Two. Field Marshall Fritz Erich von Manstein outnumbered troops defeated the Russians at the Crimea saved by Baron Wolfram von Richthohen Fliegerkorps VIII whose air force annihilated half the Russian forces. There Fritz earned his Marshall’s Baton. In a reversal at Normandy, Field Marshall Rommel in his famous message to Hitler predicting an allied breakthrough stated that allied air supremacy was smashing their best trained troops and the situation was hopeless. As we shall discuss later, the United States is banking on air power to stop the Russian Army in Europe today in the event of an attack but there will be no airports whether military or commercial within ten minutes of the commencement of war as Russian Iskander missiles carrying tactical nuclear warheads or conventional will knock them all out nullifying NATO’s air power. Tank warfare is similarly obsolete based on the improved Kornet missile and advanced silent submarines and their advanced missiles will control the seas eliminating the aircraft carriers the other major component of World War Two power. The problem is that the western armies are preparing for World War Two and not World War Three. As such, a look at NATO and its dilapidated German force demonstrates that this deterrent is but a figment of the imagination and would be wiped out within two to three weeks according to German generals we have discussed this with. In other words, in a war in Europe the three components of World War Two military power power the aircraft carrier nullified by submarines, tanks nullified by the Kornet missile and air power nullified by the destruction of the air fields would not stand in the way of a Russian Army that could reach the English Channel in two weeks.
During the Vietnam War the US Navy similarly projected air power in the newly reconstituted Task Force 77 participating in the sustained air campaigns such as Rolling Thunder and Linebacker. From 1964 to 1973 Task Force 77 flew hundreds of thousands of attack sorties against targets in North and South Vietnam. In Operation Desert Storm in Iraq the United States Navy gathered six aircraft carriers with over 400 aircraft into the Red and Arabian Seas as part of the coalition air campaign. The aircraft carriers remained in the region participating in the Iraq and Afghanistan conflict.
During the period from World War Two until recently the Navy operated close to shore with little to fear. The Russians and Chinese have developed anti-ship missiles that line the coast of China creating a 2,000 kilometer fire zone where no aircraft carrier is safe according to open sources. We understand that the range is much further than this from informed sources. If we go just by the 2,000 kilometer line it includes a large part Japan, the Philippines, Indonesia, Malaysia, etc.. And if we go according current informed estimates 3,000 to 4,000 kilometers, it will include all of these countries as well as the waterways. It would jeopardize our bases in countries as Japan, the Philippines, etc. which would be targeted in a war.
The Chinese anti-navy missile and airpower is dispersed, mobile, and designed either to be hidden or sheltered in hardened and underground facilities. For example, China’s DF-21D anti-ship missile is based on a medium-range missile that is moved about and launched from a transporter-erector-launcher (TEL). Most of China’s land-based anti-ship land attack cruise missiles are also launched from a TEL. China’s maritime strike airpower, which includes most of its fleet of Flanker fighter aircraft, can be based at scores of air bases, most of which are hardened against attack, some to a very high extent. These are the forces that can reach out 2,000 kilometers if not more.
It is important to note that our new F-35C strike fighter for our aircraft carriers has a maximum combat radius 1,100 kilometers which is about the same as the older F/A 18 EF. Even when armed with standoff missiles, these combat radii won’t be adequate to keep the aircraft carriers out of range of land-based threats to aircraft carriers. In addition, most of our bases are vulnerable within the 2,000 kilometer range and all of them except in Australia would be within Chinese missile defensive range at 4,000 kilometers.
We recently watched the Tomahawk missiles strike Syria but their range is only 1,600 kilometers which are carried by our cruisers and destroyers which makes them worthless against a land opponent with longer distance missile capacity as China presently has lining their shore.
In other words, the nearer bases are vulnerable and the farther bases are too far out for our short range designed strike aircraft. This means our entire offensive capacity in Asia is geared to short-range conflict that we are hopelessly outmatched in that almost all our short range bases stand to be immediately wiped out by Chinese defensive missiles and our long range bases do not have sufficient long range strike aircraft. We must consider all our aircraft carriers as short range as they are limited by the range of their aircraft and therefore useless in future ground support operations, And as far as their use for patrolling the seas the aircraft carriers are vulnerable to advanced Russian and Chinese silent submarines with anti-ship missiles. In other words, the United States has lost control of the seas and all of its commerce is in jeopardy in the event of a major war. Its military industrial complex that depends on parts from Asia could be shut down within two weeks for those that rely on just in time inventory control.
The US air capacity is about 12-1 short range to long range strike aircraft. This means that our enormous air power in Europe stands to be wiped out when the Russians hit the air fields with tactical nuclear weapons, and our long range strike aircraft is totally inadequate for the defence of Europe. Our entire defence budget is, therefore, warped and irrational.
The cost of a Gerald R. Ford-call aircraft carrier is 15.1 billion dollars which breaks down to 11.8 billion for the carrier and 3.3 billion for 24 F-35C strike fighters. We could buy for that some 27 of the new long-range strike aircraft at a planned cost of 550 million each. The United States has to immediately shift its procurement budgets to try to remedy this mismatch.
Thus far General McCaffrey analysis and it continues.
The Russians have delivered large quantities of Sunburn missiles to Iran designed to fly as low as nine feet at 1,500 miles an hour with dodging capacity. They can be fired from a flatbed truck which makes them mobile. It is perfect for flying into the Straits of Hormuz which is no more than forty miles wide while the actual transit space is about two miles at points. This missile fired from the Iranian shores will punch a hole the size of a room in any ship in the Straits in a fraction of a second. The SS-N-22 sunburn supersonic anti-ship missile has been described as the most lethal missile in the world today designed to defeat the Aegis radar defence system of the United States and subsequent renditions. The Russian SS-NX-26 Yakhont missile (speed Mach 2.9) line the Iranian northern shore. No declassified studies of the ability of these missile to penetrate an aircraft carrier defence have been issued, but it would appear that a large barrage of these missiles cannot be defended against by any known method but jamming equipment. However, we have the example of the Russian missile designed with anti-jamming equipment hitting an Israeli frigate (INS Hanit, July 14, 2006) off the shore of Lebanon during the Israeli attack on the Hezbollah. It sailed through the most advanced US and Israeli jamming equipment. The Chinese have these missiles.
The United States has tested successfully in 2013 the X-47B experimental unmanned aircraft though the trouble with them is that its range is only 1,900 kilometers versus about 1,100 for manned jets, but that greater range is insufficient to operate outside even the 2,000 kilometer missile defensive wall of Russian and Chinese missiles and these anti-ship missiles are said to have a much greater distance capability. There was a phenomenal exhibition of Russian military advances when their equipment downed a Stealth Drone and effected its landing in Iran enabling the Russians to put their hands on this advanced technology. The implications of this military coup could be dire for any adversary in that a nuclear tipped missile fired at Iran could be diverted and returned to its source. Nor have we discussed here how the Russians have sealed their airspace with defensive missiles (S-500) ending MAD. Nor their tens of millions of nuclear bomb shelters for their people.
This ends the General’s analysis summed by saying in a war the US fleet must flee away from the Straits of Hormuz or be annihilated, and the US cannot keep the Straits open.
If the Iranians shut down the Straits of Hormuz, 22% of the world oil supply will be cut off. The consequences will be that the oil price will rise to over $500.00 to $1000.00 a barrel and the world economy will start to implode with all the financial markets crashing as in 1929 as the 2.5 quadrillion of derivatives start a chain reaction of destruction as a financial weapon of mass destruction. In this case, the shortage of oil unlike the shortage of credit in 2008 destroyed as it was cannot be made up by a fiat instruments. The oil is not there. Therefore, this derivative market is a national security issue. The manipulations of markets is also a serious issue as it is illegal but no one seems to care about it. Until these derivatives are wound down, Iran controls the entire world whether the US Carthaginian Congress wants to recognize it or not. This is the reason the US wants to oust the present leadership in Iran and not nuclear weapons that are available on the black market from Pakistan and North Korea as the Straits closing would collapse the US economy.
I had proposed a solution to this problem to the then Secretary of Energy Samuel Bodman that the company named Genoil can tap the 900 billion barrels of world heavy oil reserves creating a 25 million barrel a day reserve production capacity at a cost of 165 billion dollars as an insurance policy for the now 88 trillion dollar world GDP and Sam thought it was a great idea. However, it was blocked by the major oil companies as the Genoil technology is highly disruptive to the value of their light oil reserves whose value would collapse as Genoil can convert heavy, high sulfured oil to light unsulfured oil at a much cheaper price that WTI and Brent which make up their reserves.
We recommend that the Department of State together with the Department of Defense and Treasury Departments move to unwind the 2.5 trillion derivative market for national security reasons on an emergency basis and adopt the Genoil technology.