If the fat finger flash crash of 2010 taught us anything, it’s that our financial markets aren’t as sound and secure as officials want us to believe. With heavy leverage, computer trading platforms, financial secrecy laws, and the unabashed greed that pervades the halls of international financial centers, the entire global marketplace is susceptible to manipulation. The official postmortem on the 2008 downturn suggests that the economic collapse, which started with rising oil prices and a sell-off in stocks, was caused by, among other factors, an over-leveraged and over-insured financial system with the culprit being an alphabet soup of financial instruments like Mortgage Backed Securities (MBS) and Credit Default Swaps (CDS).

As is the case with the lone gunman who shot Kennedy and the two planes that brought down the towers, the investigations surrounding the financial crisis were expedited, streamlined and have been officially closed.

A recent report from an independent contracting firm, however, warns that the events behind the financial crisis of 2008 and our economic woes today should not be underestimated and simply dismissed as having been a one-off event.

Evidence outlined in a Pentagon contractor report suggests that financial subversion carried out by unknown parties, such as terrorists or hostile nations, contributed to the 2008 economic crash by covertly using vulnerabilities in the U.S. financial system.

The unclassified 2009 report “Economic Warfare: Risks and Responses” by financial analyst Kevin D. Freeman, a copy of which was obtained by The Washington Times, states that “a three-phased attack was planned and is in the process against the United States economy.”

While economic analysts and a final report from the federal government’s Financial Crisis Inquiry Commission blame the crash on such economic factors as high-risk mortgage lending practices and poor federal regulation and supervision, the Pentagon contractor adds a new element: “outside forces,” a factor the commission did not examine.

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Regardless of the report’s findings, U.S. officials and outside analysts said the Pentagon, the Treasury Department and U.S. intelligence agencies are not aggressively studying the threats to the United States posed by economic warfare and financial terrorism.

“Nobody wants to go there,” one official said.

In a previous report titled When China Pulls the Peg, Cardiac Arrest Will Follow in the USA we opined that the US, China and other nations are involved in economic warfare as a matter of policy. While diplomats enjoy State Dinners, luxurious travel and smile for the cameras, behind the scenes is a tug of war where entire populations of people, numbering in the billions of souls, are affected by negotiations and trade agreements. In the case of China, one must have their head in the sand to believe they are not actively competing on the economic battlefield. Not only do they have a direct influence on the future of the US dollar, but they have spent the better part of the last three decades mobilizing their labor force by significantly undermining US trade influence. The effect on the US economy is clear. While the Chinese grew their economy, they set into motion a series of events that have begun to impoverish the middle class in America. The result is fewer jobs and an indebted social system on the brink of collapse.

This did not happen by chance. It is by design.

“This is the ‘end game’ if the goal is to destroy America,” Mr. Freeman said, noting that in his view China’s military “has been advocating the potential for an economic attack on the U.S. for 12 years or longer as evidenced by the publication of the book Unrestricted Warfare in 1999.”

According to the report, elements within China, Russia, middle east oil producers and other interested parties may, separately or in unison, be actively pursuing policies and actions that are specifically designed to collapse the US economy.

“The preponderance of evidence that cannot be easily dismissed demands a thorough and immediate study be commenced,” the report says. “Ignoring the likelihood of this very real threat ensures a catastrophic event.”

The report concluded that the evidence of an attack is strong enough that “financial terrorism may have cost the global economy as much as $50 trillion.”

The Pentagon report indicates that there is a strong likelihood that whoever is behind the machinations is operating under a three phase approach. The first phase of the attack was the build up of excessive leverage and credit in asset markets, real estate and commodities. The second phase was the crash we experienced in 2008 and early 2009. International hedge funds and financial firms, some of which may be direct extensions of certain governments and operating under international secrecy provisions, initiated sell offs through the use of techniques like “naked shortselling” and traditional “bear raids.” Lehman Brothers and Bear Stearns were wiped out and went down as the first casualties of phase two.

Since March of 2009 the economy has seemingly been growing, at least that’s what we’ve been told in official government memorandums and mainstream financial analysis. As evidenced by a rising stock market, the economy is well on it’s way to recovering the losses that occurred between 2007 and 2009.

While everything may seem fine to most Americans, including our elected officials and financial gurus, according to the threat assessment discussed in the Pentagon report, the powers-that-be who were responsible for the first two phases of the attack against our economic and financial system are now actively in the process of implementing and executing Phase III:

…“based on recent global market activity, it appears that the predicted Phase III may be underway right now.

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The third phase is what Mr. Freeman states in the report was the main source of the economic system’s vulnerability. “We have taken on massive public debt as the government was the only party who could access capital markets in late 2008 and early 2009,” he said, placing the U.S. dollar’s global reserve currency status at grave risk.

The end-game is approaching, and as we’ve suggested in previous commentary, it is predicated on excessive government leverage, spending and monetization. The United States may very well be in the final bubble, one that trend forecaster Gerald Celente has referred to as the bailout bubble.

The formation of the final bubble, if it were a planned event, would have first required the first two phases of the attack as outlined in the report. Build up the leverage in the private sector, then completely crash it. This strategy necessitated a political response from the President, Congress and all manner of financial regulators.

As we saw in 2008, the strategy worked perfectly. Within days of the stock market collapse Presidential candidates were pausing their campaigns, Congress was having emergency meetings, and the Secretary of the Treasury threatened that there would be tanks in the streets if something wasn’t done. The response, of course, is well known and has led to tens of trillions of dollars in more debt in an attempt to stabilize the economy.

As the theorized Phase III continues to play out, we are likely to see more intervention in the form of crisis spending and quantitative easing. This continued printing of money is the Achilles’ heel. In just the last two years, because most global investors have begun shying away from US debt instruments like Treasuries, it is our very own Federal Reserve, a private banking conglomerate, that is the number one buyer of US debt. The Chinese are already cutting back on their investment. And in due time, when the time is right, the Chinese simply have to say “no more,” at which point the government bailout bubble will burst.

Once in motion, there will be no more magic bullets for the Federal Reserve, Treasury Department, Congress or the President. We’ll have Crossed the Rubicon.

What it will look like on the other side is anyone’s guess, but it could be that magic financial bullets get replaced with lead and missiles, as is usually the case when economies of nations are destroyed.

While US officials may not be overtly discussing economic warfare, one thing is for sure, and that is that the Pentagon and Military are Actively War Gaming ‘Large Scale Economic Breakdown’ and ‘Civil Unrest’. Army game theorists have spent time on financial exchanges with traders attempting to learn how an economic attack could be identified and are reportedly working on preventing such a possibility.

It’s our view, however, that if military and intelligence agencies are just now getting on board with the idea of economic warfare, it may very well be too late. If those who would bring down the US and global financial systems, be they foreign governments or shadow elements operating outside of traditional national boundaries, are actively engaged in “Phase III,” then it is likely that such an attack cannot be prevented – only managed and mitigated.

If this most recent report is accurate in its assessment, the only thing left for the average American at this point is to prepare for an imminent catastrophic shock and awe that will destroy life in America as we have come to know it.

UPDATE: Full Report: Economic Warfare: Risks and Responses by Kevin D. Freeman (111 Pages) [Provided By Intellicept]