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Catalyst Watch, Part 1: CyberWar

When the technology of warfare changes, so does everything else. State-of-the-art roads and siege engines gave the Roman Empire control of the western world two millennia ago. The long bow won some notable battles for England in the Hundred-Year War. Machine guns opened pretty much the whole world to European imperialists in the 1800s. And so it has gone, through tanks, jet fighters, and nuclear weapons.

But where previous breakthroughs made it easier to destroy things and kill people, the newest super-weapons don't blow things up, at least not directly. They disrupt information systems, without warning and frequently without betraying the source of the attack. Drawing on recent news accounts along with America the Vulnerable, a terrifying book written by former National Security Agency official Joel Brenner, here's the cyberwar story in a nutshell:

Over the past couple of decades, humanity has grafted its most important systems onto the backbone of the Internet, which was originally designed for scientists to share data easily - that is, with convenience taking precedence over security. So our banking, military, energy and corporate data networks now make critical information available to lots of people using lots of sign-in credentials from lots of different places. As a result, these systems are easy pickings for thieves, vandals, and enemies.

Meanwhile, teenage hackers have been replaced as top predators in this ecosystem by sophisticated organized crime groups and even more sophisticated branches of foreign military/intelligence services. Since it's easier to penetrate critical systems than it is to prevent or detect penetration, it's safe to assume that major military networks, multinational corporations, and top-tier banks have been - and are being - hacked.

This matters because once a hacker is inside a system they can do pretty much anything an authorized user can do, from withdrawing money, to stealing critical data, to crashing the whole system. It is now possible for hackers to: remotely change the operating parameters of power generators to make them blow up, in the process taking down regional power grids; move so much money out of bank/brokerage customer accounts that the institutions fail; and crash the clearing mechanism of a country's banking system. And that's just the obvious stuff. Attacks that we can't currently conceive of are no doubt being contemplated and/or planned by governments and mafias around the world.

All of which explains why cyber-conflict has become front page news. Here's a more-or-less random sampling of recent headlines:

The world's first cyberwar has started

Your password isn't enough to keep your info secure on the internet

Norway preparing for cyber war

Cyber war: mutually assured disruption

Scott Knight: preparing for cyber-war

Obama declares global cyberwar

Federal Reserve gets hacked!

US in growing cyber war with China?

Cybersecurity: how preemptive cyberwar is entering the nation's arsenal

Obama granted cyberwar powers

Why is cyberwar a topic for a site like DollarCollapse? Because assuming - as we should - that the global financial system is now so complex, leveraged, interdependent and fragile that a disruption in one part can easily spread to the rest, the only remaining question is which catalyst will be first to set off the avalanche. A major cyber-attack is a pretty good candidate.

How likely is such an event? Well, based on what the world's governments and corporations are willing to admit (almost certainly the least serious tip of the iceberg), big things are already happening, and the threat of massive retaliation and/or preemptive strike looks both real and imminent. The Japan/China conflict in the China Sea, for instance, could easily pull the US into a cyber-battle, if not war. Because this is uncharted territory, there's no way to predict the impact on the financial markets.

Meanwhile, the cyber-powers now being granted to governments to fight the next war are eviscerating Constitutional protections of personal privacy and liberty. So the ability to fight a cyberwar is also the ability to create a high-tech police state.

Seen this way, cyberwar is yet another reason to avoid keeping a lot of capital tied up in financial assets. If the banks, brokers and insurance companies holding those assets are hacked and maybe disrupted, what happens to your stocks and bonds? Again, this is uncharted territory, which adds to the appeal of real assets held out of the mainstream financial system. The only thing that can be said with certainty is that in a cyberwar your gold coins and farmland will still be there when the virtual dust clears.

 

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