Generational Dynamics: Forecasting America's Destiny Generational
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 Forecasting America's Destiny ... and the World's

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Web Log - March, 2010

Summary

31-Mar-10 News - Putin vows revenge for black widow subway attacks

Greece's financial crisis deepens as new bond sale does poorly

Vladimir Putin says terrorists will be 'dredged from the bottom of the sewers'

A day after suicide bombers killed dozens of subway commuters during rush hour, Russian prime minister Vladimir Putin is quoted by Moscow Times as saying, "We know that they're lying low, but it's now a matter of honor for the law enforcement agencies to dredge them from the bottom of the sewers to the kingdom of God. I'm certain that it will be done."

This reminds readers that Putin once promised to "wipe out Chechen terrorists in the outhouse," referring to Islamist terrorists in the Cacausus.

The Caucasus region has been the site of many genocidal wars of extermination between the Muslim and Orthodox Christian civilizations. The last one of these was in the 1920s.

We've seen some smaller wars in the last 20 years, mainly Russia's war in Chechnya, and Russian's invasion of Georgia in 2008. From the point of Generational Dynamics, a new war engulfing the entire region is overdue. Monday's subway bombings, followed by Putin's extremely angry remarks, are both steps in that direction.

The two female suicide bombers are assumed to be "black widows," a terrorist group of women who say that are getting revenge for the murder of their husbands by the Russian police. The following Al-Jazeera video has some video showing the history of the black widows:

Greece's financial crisis deepens as new bond sale turns out badly

Greece came closer to default on Tuesday, when an auction of 12-year bonds raised only 390 million euros, instead of the hoped-for 1 billion euros, according to Bloomberg. Greece is scrambling to borrow 10.5 billion additional euros by the end of May, in order to meet debt payments on previous bond auctions. After that, Greece will still need to borrow 2 billion euros per month.

The interest rate difference (spread) between German and Greek treasury bonds is becoming larger. Greece now has to pay 3.34% higher interest rates than Germany has to pay to borrow the same money on the same terms.

The plan, as of a couple of weeks ago, was the the European Union would provide some kind of "bailout" or "backstop," in order to give investors confidence that Greece would not default, and thereby keep interest rates down. The Europeans did come up with some screwy plan that said that they would help the Greeks out, but only if Greece were already close to default. It's now increasingly clear that the whole bailout was a farce, and investors aren't falling for it, as interest rates are higher than ever.

Bad news for Greece from the IMF's Dominique Strauss-Kahn

Part of last week's supposed bailout of Greece was that if Greece were ever to be helped out, then most of the money would come from the EU, and the rest would come from the Washington-based International Monetary Fund (IMF), headed by Managing Director Dominique Strauss-Kahn. The terms of the agreement were that the EU, not the IMF, would set the terms of the deal.

Well, it turns out that the Europeans never bothered to check whether that kind of deal was OK with IMF. On Tuesday, Strauss-Kahn said that if any IMF money were involved in a deal to bail out Greece, then the IMF would dictate the terms of assistance. Bloomberg quotes Strauss-Kahn as saying that any assistance would "be an IMF program decided by the IMF as it happens with each and every country. The IMF will define the conditionality, as we do with any country."

A web site reader from France informed me that I should be more aware of internal French politics that are part of the Greek assistance deal. He wrote, "Do you know that Dominique Strauss-Kahn, the head of IMF, is a socialist, former minister of the economy in France, and the most likely serious opponent to Sarkozy in the coming election for France presidency in the spring of 2012? Back in 2007 the IMF was nearly bankrupt because it was not of any use any more (no more countries to bail out at that time) and Sarkozy managed to send Strauss-Kahn to Washington so that the French would not hear about him any more."

That observation explains why French president Nicolas Sarkozy was so opposed to IMF involvement, even though German chancellor Angela Merkel favored it. Indeed, Bloomberg reports that "Allowing the IMF to provide funds to Greece may also provide a platform for Dominique Strauss-Kahn, the Washington- based lender’s managing director and potential challenger in 2012 elections. Strauss-Kahn, 60, said Feb. 4 for the first time he’d consider cutting short his five-year term to run."

Sarko is, of course, in Washington right now, sucking up to President Obama, especially after his party's huge loss in regional elections two weeks ago. (See "Sarkozy loses big in France's regional elections.") Two glamorous politicians with beautiful wives compete for the international spotlight.

Additional Links

The five centuries old austere message of Calvinism is returning and is being increasingly embraced, especially among young people in Presbyterian, Anglican, and independent evangelical churches, according to the Christian Science Monitor. This is actually part of a general religious revival around the world, in countries in a generational Crisis era, involving different religions. Thus, we see it in Russia, Turkey, Israel and other countries as well.

With the space program winding down, NASA engineers are running out of funding. So federal investigators have given them a boost by hiring them to study the Toyota acceleration problam. I guess Toyota's problems are rocket science after all. Washington Post.

The cause of the explosion that sank a Korean ship last week has still not been determined. One possibility is a mine left over from the Korean War. CS Monitor

A trip by German Chancellor Angela Merkel to Ankara, Turkey, to visit Turkish Prime Minister Recep Tayyip Erdogan underscored the growing rift between the two countries. Merkel has opposed EU membership for Turkey. Der Spiegel.

Serbia's parliament has passed a landmark resolution offering an apology for the Srebrenica massacre in 1995 - the worst incident of the Bosnian War - without calling it a "genocide." BBC

A judge has ruled that patents on human genes were "improperly granted," because they involved a "law of nature." If his ruling is upheld, it will have far-reaching implications, as about 20% of human genes have been patented. NY Times

In a pre-election televised debate in the UK on Monday, all the candidates poured scorn on bankers for their alleged greed. I wonder if bankers are beginning to figure out how much trouble they're in? Financial Times

(Comments: For reader comments, questions and discussion, see the 31-Mar-10 News - Putin vows revenge for black widow subway attacks thread of the Generational Dynamics forum. Comments may be posted anonymously.) (31-Mar-2010) Permanent Link
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30-Mar-10 News - Russia's 'Black Widows' bring terror to Moscow subways

Destabilizing yields in bond sales from Greece and the U.S.

Two female suicide bombers kill dozens in Moscow subway bombings

Subway systems in large cities around the world are on higher alert today, after two female suicide bombers blew themselves up in Moscow subway statioins at the height of the Monday morning rush hour. At the time of the explosions, the platforms were packed with people getting on and off the trains. 37 people were killed and 65 more were injured, according to Tass. At one station, the severed head of a woman, most likely one of the suicide bombers, was found, according to Pravda.

The Moscow Times is calling it the "Revenge of the Black Widows," referring to female suicide bombers who blew themselves up in a series of suicide bombings from 2001 to 2004. Females are often more successful as suicide bombers because male policemen are often forbidden from questioning or searching women, and because of the widespread prejudice that women aren't violent, and so females rarely get caught before they blow up their bombs.

The worst of it occurred in 2004 when "black widows" were responsible for explosions that crashed two planes flying from Moscow. That was only one of three major terrorist attacks in ten days. The second was a subway bombing in Moscow, and the third was the truly horrific slaughter of more than 340 people, including 156 children, in a terrorist hrostage-taking incident in Beslan, North Ossetia. (See "Russian President Putin asks revenge for Beslan.")

All of these terrorist attacks were blamed on radical Islamist terrorists living in Russia's Caucasus region, in the provinces of Chechnya, Dagestan, Ingushetia, and North Ossetia. These provinces are the heartland of the fault line between the Muslim and Orthodox Christian civilizations that had fought many genocidal wars of extermination with each other for centuries.

Nonetheless, then-President Vladimir Putin promised revenge and victory against the terrorists, and after a lull of several years, Prime Minister Vladimir Putin last year claimed that the war was over, and that Russians, especially Moscow residents, can feel safe again.

From the point of view of Generational Dynamics, such a claim is ridiculous, for several reasons. For one thing, in a poverty-stricken region like Russia's Caucasus provinces, there are always new generations of disaffected youth growing up, willing to take advice from elder Muslim clerics preaching death to the infidel.

And second, it doesn't take an army to continue fighting a war of this type. All the radical Islamists need is a genocidal suicide bomber, preferably female, willing to blow up a subway train. It takes only one person to prove that the war has not ended.

Russia is deep into a generational Crisis era, and so from the point of view of Generational Dynamics, there are two things to watch for, as events unfold.

First, expect to see Russian xenophobia increase, as the Chechen Muslims are blamed for the current attack. There have already been scattered news reports of threats and violence against Muslims, and that's expected to increase.

And second, expect to see Vladimir Putin's popularity rise further. Putin is bitterly hated by a segment of the Russian population, of course, but that segment is relatively small. Putin is extremely popular among the Russian people, and is widely regarded as a hero for his strongly pro-Russian nationalism. It is expected that Putin will lead the Russians in the coming Clash of Civilizations world war.

Obama in Afghanistan promises the troops 'You don't quit.'

President Barack Obama took advantage of the euphoria surrounding his victory in getting the health care bill passed to visit the troops in Bagram, Afghanistan.

Here are some excerpts from his speech on whitehouse.gov:

"You are part of the finest military in the history of the world, and we are proud of you. And so I want you to know that everybody back home is proud of you. Everybody back home is grateful. And everybody understands the sacrifices that you have made and your families have made to keep America safe and to keep America secure in this vital mission. ...

We can’t forget why we’re here. We did not choose this war. This was not an act of America wanting to expand its influence; of us wanting to meddle in somebody else’s business. We were attacked viciously on 9/11. Thousands of our fellow countrymen and women were killed. And this is the region where the perpetrators of that crime, al Qaeda, still base their leadership. Plots against our homeland, plots against our allies, plots against the Afghan and Pakistani people are taking place as we speak right here. And if this region slides backwards, if the Taliban retakes this country and al Qaeda can operate with impunity, then more American lives will be at stake. The Afghan people will lose their chance at progress and prosperity. And the world will be significantly less secure. ...

So thanks to you, there’s been progress these last several months. But we know there are going to be some difficult days ahead. There’s going to be setbacks. We face a determined enemy. But we also know this: The United States of America does not quit once it starts on something. (Applause.) You don’t quit, the American armed services does not quit, we keep at it, we persevere, and together with our partners we will prevail. I am absolutely confident of that."

President Obama is as fully committed to this war as President Bush was to the war in Iraq.

Bond sales from Greece and the U.S. appear to weaken


Greek debt maturing in 2010, by month <font size=-2>(Source: wsj.com)</font>
Greek debt maturing in 2010, by month (Source: wsj.com)

Greece raised 5 billion euros on Monday, by selling 7-year government bonds. The yield (interest rate) was 5.9%, which was higher than expected, as demand was weak, according to the BBC. The money will be used to pay current debts. (This is like "using your Master Card to pay your Visa.")

As the graph shows, Greece has to raise 20 billion during April and May.

The high interest rates in Monday's bond auction indicates that investors were not impressed by the announcement last week by European leaders of a rescue package for Greece. It's increasingly clear that last week's announcement was a farce.

Yields on U.S. 10-year Treasury bonds have also been surging in a "destabilizing fashion," according to David Rosenberg at Gluskin Sheff, as quoted by the Telegraph. Last week alone, yields surged 30 basis points, from 3.6% to 3.9%. They're up 90 basis points since December. According to Rosenberg, this yield spike is similar to the one that occurred in 2007, just before the credit crisis began.

As I've said many times, from the point of view of Generational Dynamics, the situation hasn't changed. The stock market has been historically overpriced by substantial amounts since 1995, and by the Law of Mean Reversion, will have to fall sharply and stay down there for a comparable length of time (15 years). This is a mathematical certainty. (See "How to compute the 'real value' of the stock market.")

Additional Links

French President Nicolas Sarkozy and his supermodel wife Carla Bruni, who have been rumored to have had recent affairs with other people, visited New York on Monday, and made a great show of holding hands and appearing very much in love. AP

"Battle of the Youth Bulge." This article discusses the consequences of the high birth rate among Sunni Muslims in the last 60 years. While population growth in the West has has been slowing, population in Sunni Muslim countries has been growing very quickly. Daily Reckoning

Even though officials in Beijing have taken macroeconomic measures to tighten the property market, most people expect China's massive real estate bubble to continue growing, according to Andy Xie at caing.com. (Don't forget Stein's Law: If something cannot go on forever, then it won't.)

(Comments: For reader comments, questions and discussion, see the 30-Mar-10 News - Russia's 'Black Widows' bring terror to Moscow subways thread of the Generational Dynamics forum. Comments may be posted anonymously.) (30-Mar-2010) Permanent Link
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29-Mar-10 News - Thailand's raucous red shirt protests lead to stalemate

Israel is closed to West Bank for 9 days

Red Shirt protesters meet with Thailand's Prime Minister

Most countries of the world today are in generational Crisis eras, since they fought in World War II as a crisis war. The result is that I'm using writing about ethnic or religious violence that's occurring or about to occur.

But there are other countries today that are in generational Awakening eras, and it's often more fun to write about those, since they're often more colorful and less bloody.

One such country is Iran, whose last crisis war was the 1979 Islamic Revolution, followed by the Iran/Iraq war that ended in 1988. Last year's June 12 presidential elections were followed by massive street protests by young college-age people, the first generation born after the end of the preceding crisis war. These protests are the mark of a generational Awakening era. (For an analysis of Iran's 2009 protests, see "Theological split in Iran widens as opposition protests continue.")

Thailand is also in a generational Awakening era. I discussed this at length in 2008 in "Thailand government collapses, ending crippling riots from class war.")

In that article, I described the massive demonstrations by the yellow-shirted young people opposing the charismatic former Prime Minister Thaksin Shinawatra. As Prime Minister from 2005-2007, Thaksin became very popular with the poor rural voters in the north and northeast, but he angered the wealthier, better educated elite population in the southern areas around Bangkok.

Yellow-shirted opponents were able to defeat a series of Thaksin allies, until finally a bloodless coup brought an anti-Thaksin PM into office in 2009.


Red-shirted supporters of former Thai PM Thaksin Shinawatra, in mass demonstrations in Bangkok on March 15 <font face=Arial size=-2>(Source: dailymail.co.uk)</font>
Red-shirted supporters of former Thai PM Thaksin Shinawatra, in mass demonstrations in Bangkok on March 15 (Source: dailymail.co.uk)

This infuriated the red-shirted Thaksin supporters, and tens of thousands of them have been demonstrating and protesting in Bangkok for the last few weeks. They're demanding that the current PM dissolve Parliament and call a new election, with the hope of electing another PM allied with Thaksin.

Both the 2008 protests and the new protests have been almost completely non-violent, as is usually the case with Awakening era protests. However, the NY Times reports that there have been several grenade attacks that wounded soldiers.

The red-shirted protesters won a victory this weekend, when they forced the current PM, Abhisit Vejjajiva, to meet with them to talk about their demands. In fact, it seems that the Abhisit administration is losing its grip on political power, according to the Bangkok Post.

However, the Sunday meeting ended in stalemate, when Abhisit announced that the timing is not right for an election. The Times quotes him as saying, "I have to make a decision based on a consensus from the entire country, including the Red Shirts. We have to consider: will dissolution really solve the problem?"

It's clear that this raucous political situation is going to continue, just as it will continue in Iran.

However, it's worthwhile focusing on a big difference between the two countries.

Awakening era protests are caused by a "generation gap" between the survivors of the preceding crisis war and their children, born after the war. There are chaotic political battles between the two generations, and eventually the younger generation wins them, because the older generation dies out.

In Iran we see the older generation resorting to violence to prevent the younger generation from gaining power. This is a very bad sign, and portends increasing violence as the next crisis era approaches.

But in Thailand, the protests are being handled peacefully. This is a good sign, and means that the country may escape violence for years to come.

Additional Links

Israel will block entry into Israel from the West Bank starting from Sunday evening, and continuing for 9 days, until the end of Passover. Only humanitarian workers will be permitted to enter during this period. Arab News.

China is spending a record amount of money to combat internal security threats. China has tens of thousands of "mass incidents" every year, and the number is growing. Telegraph

(Comments: For reader comments, questions and discussion, see the 29-Mar-10 News - Thailand's raucous red shirt protests lead to stalemate thread of the Generational Dynamics forum. Comments may be posted anonymously.) (29-Mar-2010) Permanent Link
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28-Mar-10 News - Arabs contemplate failure of peace process

Palestinian / Israeli conflict escalates in Gaza.

Israeli troops withdraw from Gaza after bloody gun battles

A series of gun battles have followed Friday's clashes in the Gaza strip, when wo soldiers in the Israeli Defense Force (IDF) were killed on Friday in what was apparently a Hamas ambush involving gunfire and explosive devices.

The Times quotes Palestinian sources as saying that one civilian was killed and seven were wounded in new gun battles that ended on Saturday. An Israeli spokesman said that Israeli troops used bulldozers to "remove infrastructure used by terrorists to attack soldiers," before pulling out on Saturday.

Since 2003, there have been three wars in the Mideast: Israelis vs Hizbollah in Lebanon in 2006, Palestinian Fatah vs Hamas in Gaza in 2008, and Israelis vs Hamas in Gaza in 2009. The region has been relatively quiet since the last war ended early in 2009. This new violence, which appears to be intentional on the part of Hamas, could be a sign that a new conflict is about to begin.

Arab League contemplates failure of Mideast peace process

Three weeks ago, an Israeli government official announced plans to build 1,600 more Jewish settlements in east Jerusalem, at a time when US Vice President Joe Biden was visiting the region to restart peace talks between Israelis and Palestinians. (See "10-Mar-10 News - Biden in Jerusalem condemns Israeli settlements.")

That announcement, by all accounts, was accidental as to timing, but it has had a "butterfly effect" result in causing a chain reaction of events that are increasing tensions. First, the Palestinians ended all discussions of peace talks, causing Joe Biden's visit to end in failure, and then Israeli Prime Minister Benjamin Netanyahu was humiliated in a visit to Barack Obama in Washington, causing that visit to end in failure.

Yesterday's gun battles in Gaza were apparently purposely launched by Hamas, and that policy change presumably is part of the same chain reaction from the settlement issue.

The settlement issue has now caused some particularly harsh statements to come from the annual meeting of the Arab League that began on Saturday in Libya. Palestinian leader Mahmoud Abbas ruled out any peace talks with Israel unless Israel backs down on the settlement issue, according to the Arab News.

And Arab League Secretary-General Amr Moussa said that Arab states should prepare for the possibility that the Palestinian-Israeli peace process may be a total failure and come up with alternatives.

Long-time readers of this web site have known for years that the peace process will end in failure, since Generational Dynamics predicts it with 100% certainty. But part of the chain reaction caused by the recent settlement announcement is a much wider recognition that the peace process must end in failure.

It will be interesting to see whether this chain reaction continues to intensify, or whether something will happen to "restore hope," and cause the peace talks to restart.

From the point of view of Generational Dynamics, nothing has changed since what I first wrote in 2003, when President Bush launched his major peace plan. (See "Mideast Roadmap - Will it bring peace?") Generational Dynamics predicts that there will be a major new Mideast war re-fighting the 1948-49 war between Jews and Arabs that followed the partitioning of Palestine, and the creation of the state of Israel. There will be no peace agreement.

Additional Links

United Nations inspectors suspect that Iran is buidling more secret nuclear enrichment sites, in violation of international law. NY Times

The passage of President Obama's health care bill has removed a tax benefit to corporations that give prescription drug coverage to retirees. As a result, AT&T, Caterpillar, Deere & Co., AK Steel, and Valero Energy have announced large tax writedowns (AT&T's alone was $1 billion), and other companies are considering ending their prescription drug coverage for retirees. WSJ

3.3 million college students with student loans had their names, addresses, dates of birth, and Social Security numbers stolen last week, as hackers broke into an ECMC (Educational Credit Management Corp.) portable computer. Star Tribune

Increasingly aggressive Russian strategic bombers are entering UK airspace more often, causing Royal Air Force bombers to scramble on intercept missions. CNN

(Comments: For reader comments, questions and discussion, see the 28-Mar-10 News - Arabs contemplate failure of peace process thread of the Generational Dynamics forum. Comments may be posted anonymously.) (28-Mar-2010) Permanent Link
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27-Mar-10 News - Further advice on how to protect your money

Military flashpoints in Gaza and near North Korea threaten wider conflict

Elliott Wave theorist Robert Prechter expects a 'rollover'

Robert Prechter has been very successful in using Elliott Wave theory to predict specific wave patterns in the financial markets.

At its core, Generational Dynamics forecasts are "long-term forecasts," meaning that they predict long term trends spanning decades. Elliott Wave theory provides "short-term forecasts," predicting the ups and downs of the markets in the immediate future. I believe it should be possible to combine Generational Dynamics forecasting with Elliott Wave forecasting to produce extremely accurate short and long term predictions, but as far as I know, no one has yet tried that.

Robert Prechter appeared on Bloomberg tv on Friday, and said that his Elliott Wave analysis is now predicting the end of the stock market rally within the next few weeks. Here's what he said (my transcription):

"This is the third best selling opportunity in ten years. The first was in 2000, the next was in October 2007, and the third one is somewhere between now and a few weeks from now.


Robert Prechter, Elliott Wave International <font face=Arial size=-2>(Source: Bloomberg TV)</font>
Robert Prechter, Elliott Wave International (Source: Bloomberg TV)

So I am very negative again, and just to set the record straight, a year ago I was very, very bullish on the market, looking for 10,000 on the dow. So we got there, we have exceeded it. and there are all kinds of reasons why I think this is a selling opportunity.

I have been bearish for a couple of months. People did not like the market back when the S&P was selling at 667, just 12 months ago. It is now selling at 1167, up 500 points in just 12 months. The market is overvalued, overbought, it's losing upside momentum. There are too many optimists in the market by several measures. This is the complete opposite of the environment a year ago.

[Today,] you can short just about everything. Somewhere between now and May, we're going to have a real rollover. Think about this progression:

In October, the bond market topped out; in November, the dollar bottomed; in December gold and silver, and the utilities average -- go figure that one -- topped out; and in January, the CRB index of commodities topped out.

The stock market is the last domino holding up. The best trade on the board, the one I have been bullish on for the past 6 months, has been the US dollar. It has had a great move. It is a safe place to be. There is no reason to take any risk in these other markets right now. They're giving all kinds of signals of topping out.

I think the dollar has turned on a long-term basis for quite a long time. but it is not because everything is bullish. We are heading into another deflationary bout, just as we as we had in 2008. And when that happened, the dollar rallied very strongly, because a lot of the ious in dollar denominated terms were disappearing and losing value.

That's going to happen in 2010 and 2011 and probably for a couple more years. So during that period, you want to be a safe as possible, then investing in dollars and cash equivalents in the safest possible institutions."

Prechter's analysis is consistent with the Generational Dynamics predictions that have been discussed on this web log.

As I've said many times, from the point of view of Generational Dynamics, the situation hasn't changed. The stock market has been historically overpriced by substantial amounts since 1995, and by the Law of Mean Reversion, will have to fall sharply and stay down there for a comparable length of time (15 years). This is a mathematical certainty. (See "How to compute the 'real value' of the stock market.")

Where should you keep your money?

This is a question that I get asked all the time for years. My answer has generally been (for Americans, anyway) to keep your money in FDIC-insured bank accounts or in short-term (6-12 month) Treasury bills, which can be obtained online with no fee from http://treasurydirect.gov .

This question was discussed on Friday in the Financial Topics thread of the Generational Dynamics forum. For anyone wondering how to protect your money, it's still worthwhile to spend an hour or two reading this entire thread from beginning to end.

Forum participant Higgenbotham is a leading expert in investment strategies, and has provided the following advice for keeping as much of your money during the coming financial crisis:

"As a practical matter, my opinion really hasn't changed since the Fall of 2008. If people are looking for maximum safety, depending on how much money is involved, they should spread it out between cash (Federal Reserve Notes) and gold (maybe silver too), then step to a Treasury Direct account (and if they don't want T-bills, they can let them mature into C of I and that is immediately available cash if the banks are still open). Finally, there's the option of buying currency issued by responsible governments who have clean balance sheeets like Singapore. It's impossible for me to give percentages because it all depends on how deep the crisis is. It's my suspicion that the viability of the US government is going to come into question during this crisis, unlike that of the 1930's. That did happen in the 1860's and anyone living in the Confederacy who hid those cash notes in the basement lost everything they had. One thing to keep in mind is that if there's an upcoming war with China, they may attack our computer systems and it is my belief that from that standpoint holding paper cash is good advice."

I continue to discourage people from owning gold, unless they have enough money to keep gold in addition to cash. Gold is in a bubble, and should be priced around $500/oz. Any spike in gold prices might be short-lived, even in an emergency.

Gold in the form of gold-equivalent securities seems highly dangerous to me. In the case of emergency, there's no guarantee that the securities would be redeemed in a financial crisis, and you'd lose everything.

Thus, I've always said that if you're going to own gold, then you should take possession of the actual gold coins or bars. However, here you have to be careful because scams in the form of fake gold coins and bars are becoming more widespread.

If you own gold, then it's doubtful that gold would be anywhere near as liquid as cash in an emergency. If you're desperate for money, then you may have to sell goal at a sharp discount to get cash.

Putting all this together, it's very hard for me to see any good reasons for most people to favor gold over cash. I expect the US dollar to remain strong, even in an emergency.

Let me experiment with a different approach. I'd like to rate various savings options based on the amount of savings you're liable to have left after a worldwide financial crisis. 100% means you'll have all your principal, 0% means you'll lose everything. A value greater than 100% is theoretically possible, and means asset appreciation.

Here are my ratings, with some modifications based on Higgenbotham's comments:

However, these recommendations won't apply to everyone. You have to evaluate your own personal situation to decide what's right for you.

It's also a very good idea for you to be prepared for you and your family to survive in your home for a couple of weeks. This means having canned foods, flashlights, and medicines available.

Explosion sinks South Korean naval ship near North Korean waters


Yellow Sea location where South Korea ship sinks because of explosion near North Korean waters <font size=-2>(Source: wsj.com)</font>
Yellow Sea location where South Korea ship sinks because of explosion near North Korean waters (Source: wsj.com)

South Korean officials are playing down the possibility that a North Korean torpedo was the cause of an explosion that sank a South Korean naval ship on Friday evening local time. By early Saturday, 58 sailors had been rescued, according to the WSJ, but the other 46 are missing and presumed dead.

Reuters quotes a South Korean government spokesman as saying, "It is premature at this stage to discuss the cause of the sinking. It has not been determined whether this incident is related to North Korea."

The defense ministry is quoted as saying, "An unidentified reason caused a hole in the ship, which led to its sinking. Currently 58 have been rescued out of the total 104 on board. Rescue efforts are under way. The ship fired a warning shot at an unidentified object, and the object was later suspected to have been a flock of birds. But we are checking."

At this writing, it's been some 36 hours since the explosion occurred, so the South Koreans must know more than they're saying. We can imagine two possibilities:

The military will be salvaging the sunken boat and investigating possible causes of the explosion, and this will take at least 20 days, according to South Korea's Yonhap News.

Israelis and Hamas clash in first escalation since Gaza war

Two soldiers in the Israeli Defense Force (IDF) were killed on Friday in what was apparently a Hamas ambush involving gunfire and explosive devices. Two other IDF soldiers were wounded, and at least four Palestinian militants were killed, according to the Jerusalem Post.

A Hamas spokesman has told Ynet News that the incident was a planned ambush. "The purpose of this act was to prove to the Israelis that the repeated violations of the borderline will not be tolerated. The Israelis wanted to send us a message, and we responded to them appropriately," he said.

This is worst clash since the brief Gaza war of early 2008. (See "Israel declares 'war to the bitter end' and 'all-out war' against Hamas in Gaza.") Gaza has been fairly peaceful since that war ended in a ceasefire, so this even is considered to be a major escalation of tensions between Hamas and the Israelis.

Israeli Defense Minister Ehud Barak warned Hamas that it would be held responsible for all actions perpetrated against Israel, according to Haaretz.

On the other side, Hamas lawmaker Mushir Al-Masri praised the battle to a celebration of hundreds of Hamas supporters. "Entering Gaza is not a picnic," he said. "The Zionists cannot come in anytime they wish and leave anytime and however they want. The Qassam Brigades [Hamas' armed wing] were ready and taught them a lesson and they should not repeat such a foolish act."

From the point of view of Generational Dynamics, nothing has changed since what I first wrote in 2003, when President Bush launched his major peace plan. (See "Mideast Roadmap - Will it bring peace?") Generational Dynamics predicts that there will be a major new Mideast war re-fighting the 1948-49 war between Jews and Arabs that followed the partitioning of Palestine, and the creation of the state of Israel. There will be no peace agreement.

Additional Links

How not to run an SEC investigation. The Bernie Madoff non-investigation was not the SEC's only debacle. NY Times

Prices in Japan fell 1.2% in February from a year earlier. Japan has been in deflation for 12 straight months now. BBC

One thing you can do to protect yourself online is to use strong passwords. Here's how to create a strong password. Web Worker Daily

An Arab summit being held this weekend in Libya is just "political theatre." Al-Jazeera

Bill Clinton, on Rahm Emanuel: "I found Rahm. I created him. I made him what he is today. I am so sorry." The Week

A study reveals that Koreans don't have big faces. Chosun

The father of French President Nicolas Sarkozy was quite a ladies man. At age 11 he had sex with his nanny. At age 17, he ran away with the widow of a Nazi SS officer in war-blitzed Germany. Times Online

(Comments: For reader comments, questions and discussion, see the 27-Mar-10 News - Further advice on how to protect your money thread of the Generational Dynamics forum. Comments may be posted anonymously.) (27-Mar-2010) Permanent Link
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26-Mar-10 News - France and Germany compromise on Greece

Foreboding and talk of war in the Mideast

France and Germany reach compromise on Greece bailout plan

There are many things that we don't know, as I write this on Thursday evening.

What we know for sure is that the Europeans are popping champagne corks in celebration of announced deal between France and Germany over a bailout of Greece.

But the language of the agreement is so artful, there are many things we don't know. We don't know whether the deal actually provides for a bailout in the event it's needed. We don't know whether this is a defeat or a victory for French President Nicolas Sarkozy. We don't know whether this is a defeat or a victory for German Chancellor Angela Merkel. And we don't know whether the agreement will survive scrutiny for more than a few days.

The German people are overwhelmingly opposed to any German money being spent on a bailout of Greece, and so Merkel has been demanding that the Washington-based International Monetary Fund (IMF) handle the bailout. Sarkozy has been insisting that there must be a European solution to a European problem.

The compromise, according to the Telegraph, is a 22 billion euro bailout, with a "substantial share" from the IMF and a "majority" share from European states.

However, the IMF hasn't yet agreed to the deal, and it's not clear that they will, since they generally impose harsh conditions on countries that they bail out. This gets to the heart of Sarkozy's opposition to IMF involvement, since it means that the IMF, rather than the EU, calls the shots in Greece's austerity program.

Exactly this thought was expressed earlier in the day by European Central Bank President Jean-Claude Trichet. Bloomberg quotes him as saying, "If the IMF or any other authority exercises any responsibility instead of the euro group, instead of the governments, this would clearly be very, very bad."

But of course if the IMF is going to give several billion euros to Greece, then it HAS to exercise responsibility.

So really, the most that can be said at this point is that there may or may not be a real deal. Investors were not convinced, as the euro continued to fall after the deal was announced, although it recovered later in the evening. Reuters

Foreboding and talk of war in the Mideast

That's the gist of a BBC analysis of the mood in the Mideast. Problems are mounting, and solutions are increasingly distant.

There's a "deep chill" in U.S.-Israeli relations, which Politico ascribes to "bad personal chemistry" and "public confrontation" between President Barack Obama and Israeli Prime Minister Benjamin Netanyahu. The meeting is between portrayed as "ill-prepared" and "a disaster" by mainstream media sources quoted by CS Monitor.

The result, according to the BBC article, is that Netanyahu returns to Isreal weakened, creating a political vacuum in the Mideast. Such situations often lead to frustration and violence.

Netanyahu had come to Washington hoping to heal bruises that were caused when Israel announced plans to build 1600 new Jewish settlements in the East Bank, right in the middle of Joe Biden's recent visit. (See "12-Mar-10 News - Mideast peace talks collapse in humiliation.")

Instead, we have a much worse situation, with the bruises deeper than ever. Israel's building of Jewish settlements in east Jerusalem and the West Bank has always been a simmering issue, but with last week's debacle, it's becoming more explosive each day.

Jordan's King Abdullah told the Jordan Times that Israel is facing a crossroads, and must choose between war and peace. "In all my meetings with Israeli, American and international officials, I have warned that continued attacks on Jerusalem and its holy sites will ignite the entire region. Jerusalem has a special place in the hearts of Palestinians, Jordanians, Arabs and Muslims."

He added, "I think that the entire world is facing a moment of truth: either we achieve real, tangible and quick progress to resolve the conflict on the basis of the two-state solution within a comprehensive regional context which the Arab Peace Initiative offers; or we enter a new cycle of conflict and violence, and the whole world will pay the price."

On top of all this is the issue of Iran's nuclear weapons. Israel is becoming increasingly nervous about Iran's possible development of these weapons, and may take military action against Iran this year.

From the point of view of Generational Dynamics, nothing has changed since what I first wrote in 2003, when President Bush launched his major peace plan. (See "Mideast Roadmap - Will it bring peace?") Generational Dynamics predicts that there will be a major new Mideast war re-fighting the 1948-49 war between Jews and Arabs that followed the partitioning of Palestine, and the creation of the state of Israel. There will be no peace agreement.

What's changing now is that more of the world is reaching the same conclusion.

Additional Links

China is facing a "diabetes epidemic," according to a study published in the New England Journal of Medicine. More Chinese are adopting Western diets and sedentary lifestyles, with the same results as in the West. BBC

French President Nicolas Sarkozy and his glamorous wife Carla Bruni are rumored to have lovers. Straits Times

The US and Russia are about to announce a new nuclear arms reduction agreement. VOA.

The U.S. continues to threaten to impose sanctions on Iran over their nuclear development program, but always have to back off because Russia and China won't endorse the sanctions. Well, it's happened again, as the proposed Iran sanctions are softened. Los Angeles Times

24-year-old Frenchman Francois Cousteix has allegedly hacked into the Twitter accounts of Barack Obama and Britney Spears. Sci Tech Today

The social networking site Facebook is being blamed for an increase in syphilis, because it makes it easy to meet partners for casual sex. A Facebook spokesman responds, "Facebook is no more responsible for STD transmission than newspapers are responsible for bad vision." Telegraph

(Comments: For reader comments, questions and discussion, see the 26-Mar-10 News - France and Germany compromise on Greece thread of the Generational Dynamics forum. Comments may be posted anonymously.) (26-Mar-2010) Permanent Link
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25-Mar-10 News - Portugal's debt rating is downgraded

The Euro zone continues to unravel.

Euro and other currencies fall as Portugal's debt is downgraded

The euro currency plummeted sharply against the dollar on Wednesday, as Portugal's credit rating was lowered by several levels. Lowering a country's credit rating indicates a lack of faith that the country will be able to continue to make payments on its bonds and other debt. The downgrading is based on assessment that politic pressures will prevent the government reforming pension payments or cutting public spending. These are exactly the same concerns that have often expressed about Greece in recent weeks.

Greece's problems are much more immediate than Portugal's, but Portugal's downgrade has added to concern that the EU will fail to support Greece through its current crisis, according to Forex News. According to the article, the downgrade caused investor risk-aversion that benefited the dollar at the expense of other currencies.

Thus, for example, Mexico's peso weakened on Wednesday after the downgrade of Portugal's debt, according to Reuters. The article describes economists' concerns about a default by Greece, and quotes Gabriel Casillas, chief economist at JPMorgan in Mexico City as saying, "The European Union has been slow to act with Greece, which is a small country. Now that things are getting more difficult with bigger countries like Portugal, what can you expect from them?"

Colombia's currency also fell as a result of Portugal's downgrade, according to Bloomberg. Fears about a GDP report, scheduled for release on Thursday, also contributed to fears in Colombia. The article quotes a Bogota-based analyst as saying, "Not only do we have external noise, but before an important economic release such as the GDP report, investors prefer to seek refuge in less risky assets such as the dollar."

Russia's ruble also weakened on Wednesday, according to Bloomberg, also for reasons related to the Portugal downgrade.

Those who are expecting a weakening of the dollar, or some kind of hyperinflation, should pay attention to these results. The dollar is not hyperinflating; it's in a deflationary spiral, which means that the dollar currency becomes stronger and more valuable, not weaker.

Interestingly enough, US Treasury bonds did poorly on Wednesday, according to AP, because of concerns about US government debt. As the world's reserve currency, the US dollar has a life of its own apart from the United States, and so the deflationary spiral will continue even if the US Government defaults on its debt.

The continuing chaos in Europe

The crisis over the question of a bailout of Greece is exposing serious underlying rifts between France and Germany, according to BBC. The underlying basics causing the rifts are that Germans are more savers than consumers, while the opposite is true of France.

Thus, the stage is set for a very contentious EU financial summit in Brussels on Thursday and Friday. The Germans are advocating a Greek bailout by the Washington-based International Monetary Fund (IMF). The French say that an IMF bailout of Greece would signal investors that Europe is weak; they would like Europeans, especially the Germans, to give Greece whatever emergency help is required. There's been a great deal of arguing and debating in advance of Thursday's summit, though it's now claimed that the French are softening their anti-IMF position.

The most dramatic statement on Wednesday came from Paul Donovan, deputy head of global economics at UBS Investment Bank. He said that Greece will default "at some point," because the Europeans are unable to deal with the crisis.

"I think it’s in an impossible situation,” said Donovan, according to Bloomberg. "Europe has failed to clear its first serious hurdle. If Europe can’t solve a small problem like this, how on earth is it going to solve the larger problem, which is the euro doesn’t work. It’s a bad idea."

From the point of view of Generational Dynamics, these kinds of events will lead sooner or later to a panic. In one day, Wednesday, we've had negative comments about Greece, a downgrade of Portugal's debt, and a chain reaction affecting other currencies, including the euro, the peso and the ruble. This chain reaction will probably end tomorrow, but at some point, such a chain reaction will lead to a full scale panic.

Additional Links

More than 100 militants linked to al-Qaeda in Yemen have been arrested in Saudi Arabia, when an investigation found that they were planning to target oil facilities and security forces. BBC

Google's action to end censoring search engine results has angered China, which is now threatening other American business interests. Mercury News

On the American side, GoDaddy.com will stop registering domain names in China, citing privacy concerns. Reuters. lawmakers in Congress sharply criticized Beijing for its record on internet censorship and human rights. CNN. The war of words is heating up on both sides of the Pacific, as always happens during a generational Crisis era.

If you have an ordinary laptop computer, you can join the Quake-Catcher Network. You download free software, and then when any earth tremors occur, your laptop records them using sensors built into current hard disks. Live Science

A poll finds that 79% of voters think it's possible the economy could collapse. The figures are 72% for Democrats, 84% for Republicans, and 80% for independent. Fox News

(Comments: For reader comments, questions and discussion, see the 25-Mar-10 News - Portugal's debt rating is downgraded thread of the Generational Dynamics forum. Comments may be posted anonymously.) (25-Mar-2010) Permanent Link
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New York City premiere of Generation Zero documentary movie

On Tuesday evening, I finally got to see the new documentary movie "Generation Zero," in which I appear as commentator, and there were some things that surprised me.

The main thing was personal. I was surprised by how much I appear in the film -- and how brilliant Steve Bannon was in making me look good. The movie really is based on the theory developed on this web site, and its my commentary throughout the movie that ties everything together. It was really a thrill for me to see it. Steve has really accomplished something that I've failed to accomplish in 8 years on this web site -- he's presented generational theory in a way that makes it clear to everyone in the general public what's happening.

Another thing that surprised me is how much the movie saddened me. I write about the coming financial crisis all the time, so you'd think that seeing it in a movie wouldn't have much effect on me. But as a self-protective measure, I can usually build a mental wall between myself and what I'm writing about, as if I were writing about things happening on another planet. But seeing this movie broke through that wall, and really made me feel the impact of what's coming.

This is a very powerful movie, and even brought home to me how catastrophic the financial crisis is, and how it's headed for total collapse. If you want to understand what's coming, so that you can prepare yourself and your family for it, then you and your kids should see this movie when it comes to movie theatres in a couple of weeks. On the other hand, if you want to ignore what's coming, I understand that prices on a 65" flat screen HDTV have come down to only a couple of thousand dollars! Go for it!!!

Hyperinflation versus deflation

I do have to point out some differences with the movie's final conclusions.

If you're going to make a movie with a chance of gaining any sort of popularity, then it has to have an ending that provides the audience with a semblance of hope that they can go on living their lives as before, and someone else (the President, the Congress) will do something to make everything ok.

I've never taken that pose on this web site. I've always had the view that I want to present what's really coming, so that people will be able to use the time to prepare themselves and their families for it. However, I'm also aware that this is is unpopular with a lot of people. Just a few days ago, for example, a woman in Portugal wrote to me, "It also seems like you are stuck on a sort of hamster wheel, John, with a striking lack of balance. ... I challenge you to get out and smell the roses!!" I guess I've lost her as a reader, but then, I never really had her, did I?

But the producers of Generation Zero do hope to have some commercial success with the movie, and that requires some kind of "hopeful" ending. I'll comment on two aspects of the movie's ending.

First, what do we do to solve the problem? The movie shows a big "Stop" sign, and the voice-over says, "Just stop spending!" Well, the government CAN'T stop spending. This is the whole generational aspect of what's going on today. You have hundreds of millions of people (billions worldwide) who are committed to this spending path, and the momentum cannot be stopped. The world's financial system is like a boat floating faster and faster toward the waterfall, and nothing can stop it. How long it will take to get there, and what will trigger the collapse, cannot be predicted, but collapse cannot be stopped.

The second aspect is the answer to the question, What happens on the other side? What happens when the boat goes over the waterfall? What will the world look like?

The movie correctly points out that the the amount of money (US dollars) in circulation has tripled over the last couple of years. But from there it goes on to compare the American situation to that of the famous Weimar Republic situation of 1922, showing pictures of people pushing wheelbarrows of money to buy a loaf of bread.

The situation today is COMPLETELY DIFFERENT from the Weimar republic situation, and there is NO CHANCE WHATSOEVER that those scenes will be repeated. (See my article on "The bubble that broke the world.")

The dominating feature of today's financial crisis is the hundreds of trillions of dollars in credit derivatives, especially credit default swaps (CDSs), in investment portfolios around the world. A couple of trillion dollars of money from the Fed is like a teaspoon of water compared to the ocean. These CDSs are aggregated in such a way that when the right kind of default event occurs, there will be a chain reaction of non-payment that will cause panic and the collapse of huge amounts of wealth.

Most people don't realize what a sickness these CDSs represent. A CDS is essentially an insurance policy that pays off when some company goes bankrupt or otherwise defaults on its bonds. What really amazes me is that the CDS buyers and sellers need have no relationship to the bonds being insured. You're not allowed to do that with life insurance or fire insurance, but this happens all the time with "bond default" insurance.

Suppose that your name is "Jack Jones." It's as if I and my next door neighbor decide to make a bet on whether you, Jack Jones, are going to die in the next year. If you live, I get a thousand dollars. If you die, my next door neighbor gets a million dollars. It's really a sickness.

Now suppose that millions of other investors get the same idea, so that if you, Jack Jones, die in the next year, then tens of trillions of dollars will have to be paid by sellers to buyers. You can see where this is going. Some of those sellers will be unable to pay off that insurance, and they will go bankrupt. Those bankruptcies will cause other insurance payouts to come due, causing further bankruptcies.

That means that hundreds of trillions of dollars are going to disappear from the financial system, causing a massive deflation that will not be affected at all by the Fed "printing money."

That's why I keep telling people to save cash. If you have a house, then store cash in a hiding place in your basement. Otherwise, put it into an FDIC-insured bank, but be prepared to withdraw it at a moment's notice.

There are people who claim that the financial crisis has already occurred, and it's over. I hear this ridiculous claim on CNBC and Bloomberg TV every day. But no one can watch the Generational Zero movie without realizing that the crisis is not over, and there's far worse yet to come. Or, go for that 65" flat-screen HDTV instead. It's your choice.

(Comments: For reader comments, questions and discussion, see the Generation Zero - The Inconceivable Truth thread of the Generational Dynamics forum.) (25-Mar-2010) Permanent Link
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23-Mar-10 News - Obama's health care reform passes

President Obama and Prime Minister Netanyahu meet on Mideast peace

I'll be busy on Tuesday evening, and do not expect to have a news summary for Wednesday.

President Obama's health care bill is passed

I've heard a lot of wishful thinking on the part of both Republicans and Democrats.

The Republicans are saying that the passage of this bill will automatically turn voters against the Democrats in November. The Democrats are saying that once voters understand that it contains things like no rejection for preexisting conditions, then voters will love the bill and the Democrats in November.

Both sides are wrong. The effect that this bill will have on the November elections will depend on chaotic events that occur between now and then, and can't be predicted.

If the stock market bubble continues to grow, which is the assumption that the Democrats are making, then they may do OK. But if the stock market bubble begins to burst, as must happen at some point in the not too distant future, either before or after the November elections, then the Democrats may be blamed for causing the panic by passing the health care bill. In other words, it will depend on what happens to the economy, and whether the health care bill is credited or blamed for what happens.

In September of last year, I called Obama's health care bill a proposal of economic insanity, and I've heard nothing to change my mind. From Economics 1.01, we know that the only way to reduce health care costs is to increase supply -- have more doctors, more hospitals, and more medical equipment. Instead, the plan is to increase demand, by adding more patients, and decrease supply, by restricting the pay of doctors, and thereby driving doctors out of the business. That's economic insanity. The bill is a rehash of President Richard Nixon's wage and price controls, applied to health care. That was a disaster, and Obama's proposal is sure to be as well. As usual, I can only shake my head in disbelief that politicians can be so stupid.

The most moronic argument I've heard is that the bill is going to reduce the deficit. Politicians ALWAYS say that they're going to reduce the deficit, and yet the deficit has been growing exponentially for decades. As I've written many times, the deficit has gone down only during economic bubble periods -- the late 1990s and the mid 2000s. From the point of view of Generational Dynamics, the current bubble has to burst, and then the deficit will continue even more rapidly its exponential climb. (See my 2008 article, "One, Two, Three ... Infinity.")

As if to prove this point, I noticed during the talk show debates that the Republicans would claim that the Democrats were double-counting money in order to make the deficit seem lower. Every time I heard a Republican make this charge, the answer from the Democrat was always to the effect, "President Bush was the worst offender of all." In other words, the charges went unanswered, from which I concluded that the charges were true.

So the best thing that I can say about this situation is that there isn't a snowflake's chance in hell that this bill will survive as envisioned. At some point, a financial crisis will force many of its provisions to be repealed. Actually, Medicare is headed for bankruptcy even without the Obama bill, but now Obama will actually be blamed for the Medicare bankruptcy, whereas before he might have succeeded in blaming it on the Bush administration.

However, there's a good chance that, in the long run, President Obama will get what he wanted. Ten or so years from now, after the financial crisis is over and the Clash of Civilizations world war is over, then senior statesmen of the time, including former President Obama, will be looking for ways to rebuild the world. And one of those ways will be to construct a realistic universal health care protocol, building on President Obama's original bill. President Obama will get a lot of the credit, and his legacy will be secure.

Obama / Netanyahu meeting expected to end in failure

Israel's Prime Minister Benjamin Netanyahu is dining with American VP Joe Biden on Monday evening, and will meet with President Obama on Tuesday.

According Israeli newspaper Haaretz, Netanyahu hopes to heal bruises that were caused when Israel announced plans to build 1600 new Jewish settlements in the East Bank, right in the middle of Joe Biden's recent visit. (See "12-Mar-10 News - Mideast peace talks collapse in humiliation.")

Undoubtedly, Biden and Obama plan to pressure Netanyahu to back off on the settlement question, but according to Times Online, Netanyahu will not budge.

This was signaled by Nir Barkat, the Mayor of Jerusalem, who insisted that the settlements would go ahead. "I do not think anybody intended, naturally, to try to insult," he said. "But let us not get mixed up. Planning in the city of Jerusalem has to, should and will continue. We want to be sensitive to the American Administration but I want to make sure people realise there is no [housing] freeze in the city of Jerusalem."

As always, whenever I write one of these articles, I always have to repeat what I've been saying since 2003, when President Bush launched his major peace plan. (See "Mideast Roadmap - Will it bring peace?") Generational Dynamics predicts that there will be a major new Mideast war re-fighting the 1948-49 war between Jews and Arabs that followed the partitioning of Palestine, and the creation of the state of Israel. There will be no peace agreement.

Additional Links

Google has carried through its threat to stop censoring searches on its mainland China search engine, google.cn. Instead, anyone going to google.cn is automatically redirected to Google's Hong Kong search engine, google.com.hk, which is uncensored. Official Google Blog. This seems to be a very artful way of ending censoring, since it will force Chinese authorities, rather than Google, to do the censoring.

A new poll show that Germans are fiercely opposed to helping Greece out of its financial crisis, and that the Germans are much more hostile to the concept than other Europeans. Financial Times, summarized by EuroIntelligence

The financial crisis is forcing a ruinous meltdown in state after state, all across the country. NY Times. And this doesn't even count the additional burden on the states from the new health care law.

The super-hot domain name sex.com won't be auctioned off on Thursday, after all. The owners had planned to auction it off to get money to pay off debts, but creditors stopped the auction in bankruptcy court. theage.com.au

One in four children has attempted hacking into Facebook accounts, according to a new study. Dark Reading.

(Comments: For reader comments, questions and discussion, see the 23-Mar-10 News - Obama's health care reform passes thread of the Generational Dynamics forum. Comments may be posted anonymously.) (23-Mar-2010) Permanent Link
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22-Mar-10 News - Germany vs Europe in Greece crisis

French president Sarkozy has major losses to far left in regional elections

Stage set for Germany vs Europe in Brussels over Greece crisis

It appears that positions have hardened in Europe sufficiently that somebody is going to have to lose face at the EU summit in Brussels on Thursday.

Recall that Greece's Prime Minister George Papandreou delivered an ultimatum to Europeans: Help me out next week, or I'm going to the International Monetary Fund (IMF) for help. (See "19-Mar-10 News - Greece delivers ultimatum to Europe.")

European Commission president José Manuel Barroso responded by calling for eurozone countries to put a plan together. This plan might consist of loans or loan guarantees, designed to discourage speculators from betting on a Greek default.

But on Sunday, German Chancellor Angela Merkel told a radio interviewer that Greece should solve its own problems, and does not yet need aid. The NY Times quotes Merkel as saying, "Therefore, I don’t think it’s advisable to upset the markets by raising false expectations for the summit on Thursday. If Greece doesn’t need any help, then I don’t think the issue should be in the foreground."

Merkel is facing state elections in May, and a bailout of Greece is very unpopular with Germans right now, especially since their own economy is having its problems.

So as far as I can figure out, somebody has to suffer a political loss on Thursday and Friday. If some kind of bailout for Greece is on the agenda, then Merkel will be in political trouble, because she'll have to spend the meeting defending her refusal to help Greece.

But if it's not on the agenda, then Barroso will lose face.

And in that case, Papandreou will have to follow through on his threat to go to the IMF, thus angering the French, who say that the Europeans should solve their own problems. And then there'll be a very painful negotiation with the IMF, who will be willing to help Greece, but only is Greece imposes even more onerous austerity measures on its economy.

As I've said many times, there is no solution to this problem, and it's going to end badly, in a "debt spiral" and panic. The question is whether the Europeans can find a way to stall for a while longer (or, as journalists like to say, "kick the can down the road").

And there are several other countries in Europe, including the UK, that are in just as big a mess as Greece.

Sarkozy loses big in France's regional elections


French regional elections -- Sarkozy's party lost in all in provinces except in Alsace, shown in blue in France's northeast. <font size=-2>(Source: france24.com)</font>
French regional elections -- Sarkozy's party lost in all in provinces except in Alsace, shown in blue in France's northeast. (Source: france24.com)

As in other European countries, the economy is the major political issue that has led to a major political loss by the UMP, the centre-right party of President Nicolas Sarkozy. The winners were the Socialists and their left-wing allies.

This is part of an overall trend, as Europe goes deeper into a generational Crisis era, that people tend to abandon the center and more toward the left (the communists) or the right. (See, for example "5-Mar-10 News - Dutch elections give boost to right-wing Geert Wilders.")

I'm no expert on French regional politics, but I do know that Alsace has played a very important role in French and German history. In the Franco-Prussian wars of the 1860s, Germany captured and retained the two French provinces, Alsace and Lorraine. After its humiliating defeat in World War I, Germany was forced to pay reparations and to forfeit several territories, including Alsace and Lorraine. If time permits, I'll try to do some research to see if there's any connection to Sunday's election.

Lehman whistleblower informed management of unethical trades

The standard picture that financial institutions have been painting of themselves is that they were acting in good faith, doing what everyone else was doing, didn't thing they were doing anything wrong, and were surprised as everyone else when their toxic creations exploded. Certainly none of them should go to jail.

This is true of the Lehman Brothers collapse, on which a bankruptcy report was released last week. (See "13-Mar-10 News - Will 'Repo 105' scam send Lehman management to jail?")

It now turns out that the Lehman management was well aware of the Repo 105 scam, long before the collaps. The WSJ reports that Matthew Lee, a senior vice president, warned in a May,2008 letter that senior management was misleading investors about the true value of the firm's assets. He didn't use the phrase "Repo 105" in his letter, but it was those transactions that he was referring to.

Matthew Lee was fired several weeks after sending his letter.

I'm not a lawyer, but this looks like a smoking gun to me. Lehman management was defrauding investors, and they were informed that they were defrauding investors.

We mentioned briefly yesterday that JP Morgan also used the same Repo 105 transactions. We're talking about a corporate culture on Wall Street where it was OK to defraud investors in any way possible, so that bank managers could pay themselves million dollar bonuses. And if anyone dares to point this out, then he gets fired like Matthew Lee did.

Additional Links

There's a "youth bulge" in Yemen and many Mideast countries, according to Daily Reckoning. I find it amusing that they're just discovering this, as I've been writing for years how the birth rate among Sunni Muslims around the world is 2-3 times higher than everyone else.

"Pakistan simply sees no reason to stop supporting terrorists." Appearing in Pakistan's Daily Star.

(Comments: For reader comments, questions and discussion, see the 22-Mar-10 News - Germany vs Europe in Greece crisis thread of the Generational Dynamics forum. Comments may be posted anonymously.) (22-Mar-2010) Permanent Link
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21-Mar-10 News - 'Day of Anger' anti-Putin protests in Russia

Financial crisis in Britain's Foreign Office

Sorry for being late in getting this posted.

Thousands protest in Russia 'Day of Anger' on Saturday

Thousands of Russians demonstrated across the country on Saturday, calling for the resignation of Prime Minister Vladimir V. Putin. Unrest has grown in recent years over the financial crisis, which has caused unemployment and lowered salaries.

The demonstrations were smaller than those held a couple of months ago. There doesn't appear to be widespread backing for the ouster of Putin, according to the NY Times.

However, the Guardian points out that the demonstrations may show much deeper opposition to Putin. Unlike the January protests, Saturday's protests were banned and monitored by Russia's security forces, and even protest leaders were forced to withdraw calls for organized demonstrations, fearing violence.

I would have included some analysis from Russian media sources in this report but, surprise! surprise!, Russian media completely ignored the protests. For example, the front page of the Moscow Times web site points to a puff piece on Putin, quoting him as saying that Russia is going to do a booming business around the world in building and operating nuclear power plants.

Additional Links

The UK's Foreign Office is facing a major financial crisis, and is unable to pay its bills. The problem is that the value of the Pound Sterling currency has fallen so much against foreign currencies, that UK embassies in other countries do not have enough cash for ordinary expenses. Times Online

Russia's southern province of Dagestan, part of the volatile Caucasus region, has become increasingly lawless in the past year. Policemen are now being targeted on a daily basis by gunmen in some combination of Islamist militants, alienated young people, ordinary criminals and foot soldiers in private armies. NY Times

(Comments: For reader comments, questions and discussion, see the 21-Mar-10 News - 'Day of Anger' anti-Putin protests in Russia thread of the Generational Dynamics forum. Comments may be posted anonymously.) (21-Mar-2010) Permanent Link
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20-Mar-10 News - US-China relations deteriorate

Stephen Roach wants to take a baseball bat to Paul Krugman.

Animosity increases between U.S. and China

In the past few weeks, we've been reporting on the growing animosity among countries of Europe as Greece's financial crisis deepens and appears to threaten the entire euro currency. This kind of increasing animosity is typical of generational Crisis eras, as nations become more willing to pick sides, and less willing to make sacrifices to reach compromises.

The same kind of thing has been happening in US-China relations.

On Friday afternoon, former Secretary of State Colin Powell was interviewed by Judy Woodruff on Bloomberg TV. What he said about US-China relations provides a good introduction to the topic. He was asked about China's sharp reaction to American criticism of their management of the remnbini (yuan) currency as possible "currency manipulation" (my transcription):

"The very negative response from China - they don't like being instructed on how they should value their currency.

2009 was a good year in us China relationships. I think that the adminstration got off to a good start. But in the last few months, a number of things have happened that have caused the Chinese to react rather negatively. I was in China two weeks ago and heard it all.

Between the arms sales to Taiwan, the president seeing the Dalai Lama, just about the same time as the arm sale was being consummated, the Google problem, which is sort of a side issue, it's a corporate issue, nevertheless it plays into this -- and some of the trade disptures we've been having, and then you have the currency problem -- the Chinese are feeling a little bit under pressure right now, from the United States, and they're pushing back, and they're pusihing back harder than they usually do.

In my time as Secretary [of State], even as national security advisor 20 years ago, you would always have the Taiwan issue, and you would always have, "Don't see the Dalai Lama." But we'd always say we have to see the Dalai Lama, and we have responsibilities to Taiwan. and we would have an exchange of views, and then we'd move on.

But this time it seems like the Chinese are reacting with a little stiffer approach to it. I think it is manageable, and I think we can get over this hump, because the mutual interests that the two countries have with each other are so vital, based on trade and based on having good relations, so China is not going to become our enemy, but it doesn't mean that they'll follow lockstep in everything we do."

Powell doesn't see the generational trends going on here, but that's what's happening.

When Powell talks about the past, he's talking about a time when there were still plenty of people around who were part of the generations that survived World War II and, in China's case, the Communist Revolution that ended in 1949. China's president Hu Jintao and premier Wen Jiabao are both from that generation. The people who grow up during a generational Crisis war (like our Silent generation) suffer a kind of generational child abuse that causes them to grow up as compromisers and mediators.

But in both countries, younger generations are rapidly filling policy positions, and so positions are becoming hardened.

In the United States, where the Obama administration has taken a fairly conciliatory approach to China, the same can't be said of Congress.

Earlier this week, a bipartisan group of 130 US lawmakers issued an open letter to administration officials to label China a currency manipulator and impose sanctions. MarketWatch quotes the letter as saying, "The impact of China's currency manipulation on the U.S. economy cannot be overstated. "U.S. exports to the country cannot compete with the low-priced Chinese equivalents, and domestic American producers are similarly disadvantaged in the face of subsidized Chinese imports."

Chinese premier Wen Jiabao directed very harsh words against the US as well. WSJ quotes him as saying that U.S. efforts to boost its exports by weakening the dollar amounted to "a kind of trade protectionism." Wen also sharply criticized the administrations arms sales to Taiwan, and President Obama's meeting with the Dalai Lama. "These moves have violated China's territorial integrity. The responsibility does not lie with the Chinese side but with the United States."

These are not words of war, but these words are significantly harsher, on both sides of the Pacific, then they would been in the time periods, years ago, that Colin Powell was referring to.

Krugman and Evans-Pritchard get out the pitchforks

It's not just politicians that are becoming increasingly harsh with the Chinese.

Ambrose Evans-Pritchard, the international business editor of The Telegraph in London, says that "China's Politburo is spoiling for a showdown with America." He says that China has "succumbed to hubris," and "mistaken its own mercantilist bubble for ascendancy. There are echoes of Anglo-German spats before the First World War, when Wilhelmine Berlin so badly misjudged the strategic balance of power and over-played its hand."

Like Colin Powell, Evans-Pritchard is noticing a change in China's attitude: "What interests me is Beijing's willingness to up the ante. It has vowed sanctions against any US firm that takes part in a $6.4bn weapons contract for Taiwan, a threat to ban Boeing from China and a new level of escalation in the Taiwan dispute."

Evans-Pritchard notices that China is willing to "up the ante," but he doesn't notice that he's doing the same thing.

Just as the situation in Europe has sometimes resembled a Laurel and Hardy comedy this week, the same is happening on the US-China subject.

It all started four days ago when NY Times far-left political columnist Paul Krugman has used some very strong language:

"Tensions are rising over Chinese economic policy, and rightly so: China’s policy of keeping its currency, the renminbi, undervalued has become a significant drag on global economic recovery. Something must be done. ...

[What China is doing] is the most distortionary exchange rate policy any major nation has ever followed. And it’s a policy that seriously damages the rest of the world."

Krugman goes on to reject reasoning with China, saying that "we’ve been reasoning with China for years ... and gotten nowhere." Instead, he proposes an enormous 25% surcharge on Chinese imports.

Krugman's remarks are very close to hysteria, but that's what happens in a generational Crisis era.

Morgan Stanley Asia Chairman Stephen Roach wasn't shy in a response to Krugman in an interview, excerpted by Seeking Alpha:

"They don’t want to look in the mirror. America doesn’t have a China problem. It really has a savings problem. America has the biggest shortfall of national savings of any leading country in modern history. And when you don’t have savings you have to run current account deficits to import surplus savings from abroad and run massive trade deficits to attract the capital. Last year America ran trade deficits with over 90 – that’s right nine zero –countries. ...

I think we should take the baseball bat out on Paul Krugman. I think the advice is completely wrong. ...

Isn’t it the height of hypocrisy that America can articulate a particular position in its currency but the Chinese are not allowed to do that."

This debate is far from over, and although it's only words, the words are going to become increasingly harsh.

Each of the two countries, US and China believes that it's stronger than the other, militarily and economically. There is hubris on the part of China, but also on the part of the US. Generational Dynamics predicts that China is headed for major financial disaster, an internal civil war, and world war with the West. At some point, the worsening war of words will start to go beyond words.

Additional Links

Odd homes built out of tires and trash, or other homes favored by environmentalists, are turning off banks, making it harder to get mortgage loans for them. WSJ

JP Morgan also used the same "Repo 105" accounting scam that Lehman Brothers used, prior to its collapse. Financial Times. This is not surprising in the least, since scams were increasingly the "norm" for banks, although it's interesting that it's now confirmed.

A United Nations report finds that 250 million people moved out of slum conditions in the past decade, thanks to rapid economic growth, especially in India and China. And yet, the number of people living in slums increased by 55 million in the same period. That's because of population growth. Reuters. It's a principle of Generational Dynamics that a major factor that drives nations into genocidal crisis wars is the competition for resources resulting from population growth.

There has been a lot of rioting in Jerusalem this week, following the Israeli announcement that 1600 new settlements would be built in east Jerusalem. However, deployment of 3000 police officers has brought things under control. In the worst rioting, 200 people, "mainly Palestinian teenagers with their faces covered," threw rocks, bottles and axes, at security forces. Jerusalem Post.

Israel's settlement announcement is also harming relations with Turkey. Turkish Prime Minister Recep Tayyip Erdogan condemned the announcement, saying that it proves that Israel "wants to erase the Palestinians step by step." Ynet

Phishing attacks by hackers on corporate computers shot up by 60% in 2009. A lot of the attacks were on large financial organizations. Dark Reading

Here's a good, readable explanation of what credit default swaps (CDSs) are, and how they're making the Greece financial crisis worse. Euro Intelligence.

Official figures show that 25% of UK adults are out of work. Those are definitely Great Depression level figures. Telegraph

(Comments: For reader comments, questions and discussion, see the 20-Mar-10 News - US-China relations deteriorate thread of the Generational Dynamics forum. Comments may be posted anonymously.) (20-Mar-2010) Permanent Link
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19-Mar-10 News - Greece delivers ultimatum to Europe

Greenspan says that he didn't cause the housing bubble.

Greece delivers an ultimatum to Europe

The European finance drama took some additional amusing turns on Thursday, as various officials scrambled to avoid making a decision, and to save their own political skins.

The most dramatic moment of the day came at a press conference in Brussels given by Greece's Prime Minister George Papandreou at which, according to Reuters, he issued what amounts to an ultimatum to the European Union to come up with a clear offer of standby loans next week or face the embarrassment of Athens asking the International Monetary Fund (IMF) for help.

"But I would prefer the European solution. I would prefer the European solution as part of the euro zone, as a European," he said.

I'm trying to think of an analogy that would convey exactly why this is a big threat, and the only thing I can come with is California governor Arnold Schwarzenegger announcing that he would ask China for financial help unless Washington bailed out California within one week, adding, "But I would prefer an American solution, as an American."

No European Union country has ever gotten help from the IMF, and there's a strong aversion to seeking help from the Washington-based foundation. ECB President Jean-Claude Trichet, French President Nicolas Sarkozy and former EC president Jean-Claude Juncker, have said that asking the IMF for help would show that the EU can't solve its own problems.

However, Sarkozy, Trichet and Juncker don't want their respective countries to bail out Greece. They want Germany to bail out Greece. That would be their idea of the EU solving its own problems.

And that's why German Chancellor Angela Merkel has changed her mind on this issue, according to Bloomberg, saying that Merkel now wants the IMF to bail out Greece.

But wait -- Greece doesn't actually want a bailout, from either the EU or the IMF, according to Reuters. He's complaining that the cost of borrowing money is too high, because speculators are pushing up yields (interest rates) on Greek bonds. So he'd like regulators to control speculators, which is a laughable goal. And he'd like the EU to supply not aid, but the PROMISE of aid. He claims that if the EU commits to bailing out Greece in the future as a last resort, then the commitment will never have to be honored, since speculators will be discouraged from speculating on Greek bonds.

But wait -- does that actually work? The WSJ says that Papandreou's strategy could actually backfire:

"Message to George Papandreou: Silence is golden. Thursday, the Greek prime minister called on European leaders to agree next week to a package of standby loans to buy his country breathing space on reform. But every time Mr. Papandreou opens his mouth to complain about the lack of European Union support for his country, or hints that he might go to the International Monetary Fund for aid instead, he actually makes the job of financing his country's deficit more difficult.

Mr. Papandreou's fear is that high borrowing costs will dilute the impact of the harsh budget measures already announced. That is a legitimate fear. But by talking so much about the need for support to bring borrowing costs down, he risks bringing about the very thing he most fears by raising in investors' minds the idea that Greece has a problem with market access—when it clearly doesn't."

You know, Dear Reader, I keep writing about this Greek crisis almost every day, because it's always different every day. One gets the feeling of a Laurel and Hardy comedy, with a new scene every day, each one funnier than the last.

For some reason, what Greece is going through with France and the others reminds of the lyrics of Teresa Brewer's great song, Let Me Go Lover: "You don't want me, but you want me, to go on wanting you. How I pray that you will say that we're through."

So, for today's entertainment, here's a video of still pictures of Teresa Brewer, accompanying her great recording:

I can't end this report without mentioning that, despite all the laughter, this is a very serious situation. The reason that it seems like a bad comedy is because there's no solution. Greece, and Europe in general, are headed for a devastating financial crisis, and no one has any idea how to prevent it.

Greenspan says that Fed didn't cause the housing bubble

On Thursday, former Federal Reserve chairman Alan Greenspan gave a 48-page speech (PDF) at the Brookings Institution, describing the causes of the financial crisis.

In a summary by the NY Times, Greenspan is quoted as saying: "We had been lulled into a sense of complacency by the only modestly negative economic aftermaths of the stock market crash of 1987 and the dot-com boom. Given history, we believed that any declines in home prices would be gradual. Destabilizing debt problems were not perceived to arise under those conditions."

Of course, I've discussed the false panic of 1987 many times. The stock market was underpriced at that time, and that's why the effects were modest. (See "System Dynamics and the Failure of Macroeconomics Theory.")

Greenspan also denied that the Fed's low interest rates did not cause the housing bubble. He said, "The global house price bubble was a consequence of lower interest rates, but it was long-term interest rates that galvanized home asset prices, not the overnight rates of central banks, as has become the seemingly conventional wisdom."

As I've explained many times on this web site, interest rates had nothing to do with the housing bubble. The housing bubble began around the world in the mid-1990s, just as the risk-averse survivors of the Great Depression were all disappearing (retiring or dying). The Boomers and Gen-Xers that were then in charge practiced debauched and depraved forms of credit abuse that caused not only the housing bubble, but the credit bubble. (See "The housing bubble began in 1995" and "The global housing bubble began in the mid-1990s.")

Additional Links

Those people expecting hyperinflation are going to be very disappointed by the economic data of the last couple of days. On Thursday, the US Labor Department announced that consumer prices were flat BBC, and on Wednesday, the US Labor Department announced that wholesale prices fell unexpectedly. BBC.

How Millennial are you? A quiz by Pew Research. I took the quiz but didn't do very well. I think it's because my nose isn't pierced.

There are very few American journalists with international prestige, and Christiane Amanpour is probably the best of those few. She's been with CNN for years, but will now move to ABC, where she will anchor the Sunday morning "This Week" program. NY Times

(Comments: For reader comments, questions and discussion, see the 19-Mar-10 News - Greece delivers ultimatum to Europe thread of the Generational Dynamics forum. Comments may be posted anonymously.) (19-Mar-2010) Permanent Link
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18-Mar-10 News - Euro sniping over finances

The FBI reveals a new online scam

Euro-sniping grows, as Greece financial situation flounders

"There was no Greek bailout deal on Monday – Eurogroup statement was essentially a lie," said EuroIntelligence. "We are wondering how long it can go on for – that political leaders pretend there to be an agreement in principle over a bailout of Greece, while in reality there no agreement at all. The financial markets still seem to believe that a deal has been brokered on Monday, but the news we are getting suggests the very opposite." The article concludes, "Germany only favours a bailout that is not really a bailout."

It's true that there's no bailout going on, but there's plenty of sniping going on over the non-bailout. And as the last sentence of the preceding paragraph hints, Germany is increasingly becoming both the sniper and the target of the sniping.

Germany is at the center of all the bailout discussion for two reasons:

As I reported on Monday, tension is growing between France and Germany over a bailout. French Finance Minister Christine Lagarde has urged Germany to cut its trade surplus, something that the Germans are calling "Germany-bashing."

Lagarde's attack has caused Britain to join in the fun. Lombard Street Research’s Charles Dumas says the following in a note quoted by FT Alphaville, accompanied by a chart that shows that Germany has the second lowest GDP growth of major countries since 2001:

"The comic aspect of the attempts by Germany to make the rest of Europe converge on German practice is that the German economic performance has been dismal. What is now being enforced is that nobody else in the Eurozone – or its irrational aspirant members – is to be allowed any growth either. Europe is being forced into a German lowest common denominator.

The question Mme. Lagarde is rightly asking is: how much longer do we have to put up with being lectured by this bunch of policy failures? The chart above shows real GDP growth from the end of the last recession. ...

Why does Germany depend for its demand on other people’s readiness to run up debts? Because its own spending is crushed by budget-balancing. GDP growth over the recent cycle may have been pathetic, but consumer spending growth is worse: non-existent. Now, not least because of EMU-driven measures, other people will not be running up debt. Germany will do even worse than before. And yet we are all expected to take their policy views seriously!"

Now the German magazine Der Spiegel is striking back:

"Greece's budget deficit is impossibly high. But Great Britain's is even higher. Prime Minister Gordon Brown has his work cut out for him in this election year -- and the coming cuts will be painful. ...

The British pound is tottering. The economy finds itself in its worst crisis since 1931, and the country came within a hair's breadth of a deep recession. Speculators are betting against an upturn. Instability in the banking sector has had a more severe impact on government finances in Great Britain than in other industrialized countries. London's budget deficit will amount to £186 billion (€205 billion, or $280 billion) this year -- fully 12.9 percent of gross domestic product. ...

The country that was once referred to as "Cool Britannia" is in a serious crisis, with a hole in its budget even bigger than Greece's budget deficit, now at 12.2 percent. And nobody knows how to fix the problem."

The growing sniping is appearing more and more like a race to the bottom, and with good reason: Nobody knows how to fix ANY of the problems facing Europe right now.

And a crunch is approaching quickly. Here's a list from Der Spiegel of the value of bonds due from the "P.I.I.G.S." countries by the end of May, in billions of euros:

    Italy          70.0
    Spain          32.5
    Greece         20.5
    Portugal       12.8
    Ireland         7.2

These are huge amounts of money that have to be paid by these countries to prevent bond defaults. The countries will have to borrow the money to to meet these payments, and they'll be competing with one another for investors' money.

The article quotes Dominique Strauss-Kahn, head of the International Monetary Fund (IMF), as saying, "We have countries with huge deficits, the US for example, but also several European countries. They need to save more, having less domestic consumption to rely more on exports." But he added that in countries with large current account surpluses, such as China and Germany, "it has to go the other way round: Domestic demand has to go up with more consumption and investment."

That's a nice formula, but it's exactly the kind of thing that Generational Dynamics says can't work. The U.S. people were savers in the 1920s and 1930s, but it didn't do them any good in the Great Depression, so they became spenders after the war. Meanwhile, Germany was a spending nation, and they had catastrophic bank failures in 1931 and 1932, leading to Naziism, and so they became a saving nation after the war. So now we're to expect a speech by the head of the IMF to change all these things around. It doesn't work that way.

As for Greece itself, Harvard University Professor Martin Feldstein says that Greece’s austerity plan will fail and the country may quit the single currency to fix its fiscal crisis, according to Bloomberg. "The idea that Greece can go from a 12 percent deficit now to a 3 percent deficit two years from now seems fantasy. The alternatives are to default in some way or to leave, or both."

From the point of view of Generational Dynamics, what has to happen is a major panic and financial crisis. I've come to believe that the panic is just as likely to start in Europe or in China as on Wall Street. Nobody knows what will trigger a panic, but with all the sniping and finger-pointing going on in Europe, it could start there at any time. And then it will spread to the U.S. faster than you can say Jack Robinson.

The FBI reveals a new online scam

The FBI's Internet Crime Complaint Center (IC3) is reporting sharply increased online crime, according to Fierce CIO.

A new scam that's becoming more widespread works as follows: You receive a request to participate in a survey about the status of employee/employer relationships in a tough economy. You are asked to submit a pay stub to prove your place of employment. The scammers then use the pay stub to get into the employer's bank account by means of fake checks.

However, the biggest scams are still occurring through Facebook, by means of powerful data mining techniques, according to the NY Times. The article points out that "Computer scientists and policy experts say that ... seemingly innocuous bits of self-revelation can increasingly be collected and reassembled by computers to help create a picture of a person’s identity, sometimes down to the Social Security number."

Additional Links

Hitler, Naziism and the Nazi cross are becoming increasingly popular in Pakistan and India, making German visitors cringe. Der Spiegel

Recent moves in the United States and Sweden to declare that Turkey was guilty of genocide against the Armenians during World War I are so infuriating the Turks that they've recalled their ambassadors to both the U.S. and Sweden. And now, an angry Turkish Prime Minister Recep Tayyip Erdogan is threatening to deport 100,000 Armenians living in Turkey without citizenship. Times Online

It now turns out that, just a few months before the collapse of Lehman Brothers, officials from the S.E.C. were in the bank doing a thorough audit, and were aware of the massive "materially misleading" Repo 105 transactions that we discussed a few days ago. But, as in the case of Bernie Madoff, they did nothing about it. NY Times

(Comments: For reader comments, questions and discussion, see the 18-Mar-10 News - Euro sniping over finances thread of the Generational Dynamics forum. Comments may be posted anonymously.) (18-Mar-2010) Permanent Link
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Computer Sciences Corp. (CSC) gives award for Generational Dynamics

This provides further expert validation of generational theory.

On Tuesday, I received word that Computer Sciences Corp. (CSC) will award me as one of six winners (out of 160 submissions) of its 2010 Leading Edge Forum Papers program.

The particular paper that I submitted last year for the 2010 competition is the following:

"International business forecasting using System Dynamics with generational flows."

This paper brings several articles together in one place and updates many other materials from this web site, including the application of Systems Dynamics and Chaos Theory, and the history and basics of generational theory. It shows how Generational Dynamics can be used by commercial and government organizations to forecast developments in foreign countries.

This award is significant because it's the first time that a body of experts have performed a scholarly review of Generational Dynamics for validity. There were over 100 experts from numerous fields evaluating the 160 entries, and the fact that mine was chosen as a winner indicates that these 100 judges find Generational Dynamics valid enough to pursue and publicize.

This award comes at a time when the documentary movie "Generation Zero" is about to open in movie theatres. This movie is based on the Generational Dynamics theory.

(See "The politics of the 'Generation Zero' documentary movie" and "New documentary movie 'Generation Zero' brings generational theory to the public.")

The combination of the CSC award and the recognition from "Generation Zero" does a lot to advance generational theory and Generational Dynamics.

(Comments: For reader comments, questions and discussion, see the Generational Crises and Methods for Evaluation thread of the Generational Dynamics forum.) (17-Mar-2010) Permanent Link
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16-Mar-10 News - Historic Israeli-US ties deteriorate

A bailout of Greece may or may not be near

Author Michael Lewis pins the blame for the financial crisis

I quoted Michael Lewis in an article I posted a year ago. (See "Stories of massive generational fraud and corruption continue to pour out.")

Michael Lewis is now out with a new book, "The Big Short," describing the the people who made money from the financial crisis, while millions of others had their life savings destroyed. He appeared on the TV show 60 Minutes on Sunday evening, but what I found more interesting was an interview that was broadcast on Bloomberg TV on Monday.

Lewis was asked whom he blamed for the financial crisis, and here's what he said (my transcription):

"If I had to put my finger on one person, or one kind of person, one role player in this crisis who I would like to string up, rather, I would like to to have him answer questiosn homnestly to the public, I think it would be [[pauses for several seconds]] the people who I know who knew better.

I would like for the people who designed synthetic CDOs at Goldman Sachs and persuaded AIG to insure them, to essentially take all the risk in the subprime mortgage market in 2005. I would like for them to explain what they thought they were doing.

There was nothing illegal about what they did, it was just exploitative, it was wrong but they were smart enough and their position in the society was elevated enough that you would have thought that they would have paused and said I have some responsibility not to do this, or to prevent this from happening, not actually make it happen.

I hold, there's a very obvious status structure on Wall Street, ratings agencies aren't even in it, but at the very top of the status structure is Goldman Sachs, certain traders at Goldman Sachs, and hedge funds. when the people at the top set such a bad example, everything else in a weird way follows from it.

I would like the genuine elites to explain why they behaved in the way they did it because I think in the end, if you are going to get back to a saner our relationship between our financial system and the rest of the economy, the rest of the society. you have to have people at the very top of that structure who have some sense of social obligation. They do not right now."

Even though I don't agree with some of the things he says, I think this is very intriguing.

He paused for several seconds and chose his words carefully, probably because he doesn't want to get sued, but he finally placed the blame as follows: "I would like for the people who designed synthetic CDOs at Goldman Sachs and persuaded AIG to ensure them, to essentially take all the risk in the subprime mortgage market in 2005."

Presumably he's talking about the Gen-Xers who designed the CDOs that later turned out to be "toxic assets," and he blames the Boomer bosses who helped sell them to AIG. As I've said many times, the financial crisis could not have been perpetrated by Gen-Xers alone, or by Boomers alone; the unique features of both generations, working in unison, were required to perpetrate these crimes.

He says that they're NOT crimes, that Goldman Sachs did nothing illegal, but that they should have to explain why they did it.

And yet, Lewis is describing a crime of securities fraud. He's clearly implying that the people who designed the CDOs knew they were defective (or why would any explanation now be required?), and he explicitly says that the people who knew this then went on to persuade AIG to insure them. Well, if the people at Goldman Sachs knew they were defective, then they must have lied to the people at AIG to persuade AIG to insure them, and that would be fraud.

So Lewis is saying indirectly that the people at Goldman Sachs were comitting fraud in 2005.

But wait a minute. Were the people at AIG idiots? Were they neophytes? If the people at Goldman knew that the CDOs were defective, then surely the brainy people at AIG must have figured it out as well. So why did they agree to insure the defective CDOs?

Well of course that answer is obvious. The people at AIG knew that the CDOs were defective, but they didn't give a sh-t. They insured them in order to collect fat commissions and million dollar bonuses, knowing that when the insurance had to be paid off, it would be someone else's problem.

And what makes me furious at Lewis, as well as all the other bloggers and reporters who write about this stuff, is that they're soooooooo anxious to allow these crooks to get off the hook. It's perfectly obvious, by Lewis' own reporting, that the people at Goldman Sachs and AIG committed crimes, but the only "punishment" that Lewis would want to inflict is to ask them to, uhhhhhh, "explain what they thought they were doing."

Somewhere in the 60 Minutes interview, I heard Lewis complain that regulators were too taken in by elites at Goldman Sachs, and so they didn't do their jobs. Well, it's hypocritical of Lewis to make that complaint, since he's as bad as the regulators were. In fact, Lewis is worse, since he has five years of retrospective reporting to look at, and he's still being played for a fool.

Here are a couple of final points. I knew nothing about mortgage-backed CDOs in 2005. I first wrote about how they worked early in 2008 in "A primer on financial engineering and structured finance."

However, in 2005, I did know that we were in a housing bubble that would crash, and I said so many times. I also quoted Alan Greenspan and others saying much the same thing. That fact that we were in a housing bubble that was going to collapse meant that all the CDO computer models were wrong, and the people at Goldman Sachs and AIG must have known, or should have known, that the computer models were wrong, and that therefore the CDOs were defective.

Today, in 2010, we're still in a bubble. I've said it many times, and I've quoted people like Niall Ferguson and Elizabeth Warren who have also said so, though in different ways. And exactly the same kinds of illegal practices are going on today, being perpetrated by exactly the same people, who are still making fat commissions and bonuses by screwing ordinary investors, who are going to lose everything when the bubble collapses.

Tension grows between France and Germany over Greece bailout


Greek debt maturing in 2010, by month <font size=-2>(Source: wsj.com)</font>
Greek debt maturing in 2010, by month (Source: wsj.com)

According to leaked information published in the Austrian newspaper Der Kurier, summarized by EuroIntelligence, Germany and France have agreed that a 55 billion euro bailout of Greece will be needed by the end of 2010, that Germany would contribute 20 billion euros, France would contribute 10 billion euros, and other countries, except those that are in trouble (Spain, Portugal and the UK) would contribute according to their ability.

This agreement will be put to the test very quickly, as the graph shows that some 20 billion euros of debt payments will be due in April and May.


June 2005: Jean-Claude Juncker, Tony Blair, Jacques Chirac
June 2005: Jean-Claude Juncker, Tony Blair, Jacques Chirac

Since Germany's Chancellor Angela Merkel has said many times that there would be no bailout of Greece, it's not surprising the strains are showing already, in the form of what the Germany magazine Der Spiegel describes as "Germany-bashing." According to the article, " French Finance Minister Christine Lagarde has urged Germany to rein in its trade surplus, arguing that its export strength is hurting weaker economies. The German government is bracing itself for a fight."

I can't resist bringing back one of my favorite pictures from the past -- the photos from June, 2005, in the article "Acrimonious European Union summit ends in crisis," of Jean-Claude Juncker, Tony Blair, and Jacques Chirac. At that time, the argument was over agricultural subsidies for France -- France wanted more of them, and Britain wanted less of them. In the end, about six months later, Tony Blair caved in to Chirac, in order to end the dispute.

This bailout of Greece situation looks like it might be equally contentious. 55 billion euros is a lot of money, and everybody is hopin' and prayin' that the new stock market bubble is going to continue growing, and will not burst. If that turns out to be wrong in 2010, and the chances are that it will be, then there's going to be a lot more acrimony.

Warning: Your bank won't protect you from online banking fraud

In a recent survey, 55% of small businesses reported experiencing fraud in the last year, with 58% of the fraud enabled by online banking activities, according to Dark Reading.

Many small businesses assume that banks will restore funds that are lost in through online hacking of the banks' online banking sites, but that's not true, according to the survey. It found that 57% of the respondents that have experienced a fraud attack were not fully compensated by their banks, and 26% were not compensated at all.

This comes at a time when banks are pushing their credit card customers very hard to agree to cut off paper statements, and require the customers to go online each month to get a "paperless statement." This supposedly "saves the environment," as the wonderfully civic-minded folks at the bank might say, but it also removes a monthly reminder to pay your credit card bill, and makes it more likely that the bank will have an excuse to raise your interest rate to 30% so that they'll have more money to pay themselves million dollar bonuses.

Now, thanks to this survey on online banking fraud, there's an even more important reason not to end your paper statements.

Israeli-US ties continue to deteriorate over settlement issue

The issue of new Jewish settlements in the West Bank is turning more into a bitter dispute between Israel and its Western allies.

America's unwavering support for Israel comes out of a cultural contradiction in the country's ideals, early in the 20th century. America was supposed to embrace the ideal of religious equality, but in fact America was really a Protestant nation, as I explained several years ago in "President George Bush talks about a 'Third Awakening,' but he has his history wrong."

However, Protestants, Catholics and Jews became united against their common enemy, Communism, after the Bolshevik Revolution of 1917. And then, after WW II, America and many other countries supported the creation of Israel in 1948, after becoming aware of the horrors of the Holocaust.

But now the London Times is saying that, for the first time, Israel's value as a strategic ally is being questioned by America. The article quotes General David Petraeus as openly questioning Israel's value as a strategic ally, because the failure to achieve an Arab-Israeli peace deal is the best recruiting tool for militant Islamists.

From the point of view of Generational Dynamics, this analysis is completely wrong, of course. Militant Islamist terrorism would be growing with or without an Arab-Israeli peace deal, and relations between Arabs and Jews would be deteriorating just as surely (and probably more swiftly) if Israel were not America's ally.

Nonetheless, America's support of Israel, no matter how irrelevant, has become a convenient target of blame for many of the problems of the world, and that's likely to get only worse.

On Monday, Israeli Prime Minister Benjamin Netanyahu firmly rejected any curbs on West Bank settlements. Reuters quotes him as telling the Knesset: "For the past 40 years, no Israeli government ever limited construction in the neighborhoods of Jerusalem," referring to areas of Jerusalem that Israel captured in the 1967 war. This statement is an open rejection of the Obama administration's demands.

The Obama administration has now been publicly humiliated two or three times over Israel's settlement issue, and the Palestinians are now firmly refusing to talk with the Israelis unless the settlements are canceled. The Israelis are saying, just as firmly, that the settlements are going to proceed.

Generational Dynamics predicts that there will be a major new Mideast war re-fighting the 1948-49 war between Jews and Arabs that followed the partitioning of Palestine, and the creation of the state of Israel. There will be no peace agreement.

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There are raucous Awakening era protests and riots going on in Thailand right now, with 100,000 protestors wearing red shirts in support of former Prime Minister Thaksin Shinawatra. The protestors are even collecting containers of their own blood, to splatter on Thai government headquarters. What fun! AP

Men over 50 are significantly more absent-minded than women over 50. That's why men so easily forget birthdays, anniversaries, and even friends' names. Guardian

Supersize K-cup bras arrive on the high street. Telegraph

A survey shows that readers don't want to pay for news online. AP

(Comments: For reader comments, questions and discussion, see the 16-Mar-10 News - Historic Israeli-US ties deteriorate thread of the Generational Dynamics forum. Comments may be posted anonymously.) (16-Mar-2010) Permanent Link
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15-Mar-10 News - Georgians panic over mock TV war report

Taliban claims credits for bombings in Afghanistan and Pakistan

Taliban steps up bombings, and Nato and Pakistan army step up counter-insurgency

As Nato's "surge" strategy continues in Afghanistan, Taliban terrorists set off a series of bombs Saturday in Kandahar, the spiritual home of the Taliban in Afghanistan. Dozens were killed and wounded, including 13 police offices and 22 civilians. The Taliban have taken credit, and a spokeman says the attacks are a warning to the Nato forces, according to The Telegraph.

As we've said in the past, an important difference between the Iraq war and the Afghanistan war is the tribal area of Pakistan, on the border with Afghanistan. In Iraq, al-Qaeda linked suicide bombers are far from their base, but in Afghanistan, Kandahar is close to the tribal area, which is the stronghold for hundreds of Taliban terrorists.

In the last year, the Pakistan army has been cooperating with the Nato forces in Afghanistan by targeting terrorist hideouts in the tribal, and at least 18 Taliban were killed on Sunday, when fighter jets bombed their hideouts, according to Pakistan's Daily Times.

However, the Taliban have also been stepping up their terrorist activitites. The Taliban have claimed credit for Lahore suicide bombings that we reported on Friday, as well as a Saturday suicide bombing in Pakistan's Swat Valley.

If you listen to pundits and politicians about all this, then you get various mixed messages. Some of them blame all the Taliban terrorist activity on Nato, especially Americans, even claiming that if the Americans would only go home, then all terrorist activity would cease. Others claim that increased activity by the Pakistan army would rid the region of Taliban terrorists.

All of these views overlook the generational angle. There is a whole new generation of young Sunni Muslim Pashtuns who are being influenced by al-Qaeda linked clerics to become jihadists. These young people will continue to turn in that direction whether the Americans are there or not, and they will increase in number faster than the Pakistan army can bomb their hideouts.

See last September's report, "American army general warns of imminent defeat in Afghanistan war," for a more complete analysis.

Fake TV report on new Russia-Georgia war panics Georgians

In a world where people are always doing something stupid, this is one of the stupidest stunts I've seen in a while.

Recall that in 2008, a bitter conflict between Georgia and South Ossetia led to a Russian invasion of Georgia.

On Saturday evening, a TV show in Georgia ran a half-hour spoof news show, supposedly portraying events that would occur in three months, on June 7, 2010, according to the Georgian Times. Using 2008 footage, the show portrayed a new Russian invasion, leading to the assassination of Georgian President Mikheil Saakashvili.

The fake news story began with a brief announcement, quoted by Civil Georgia: "We want to offer you a simulated, special bulletin.... Our viewers and invited guest [in Special Report program's studio] will see a news bulletin of probably the toughest day for Georgia, which take into view those threats which politicians and experts are discussing regularly; [a news bulletin about] how events may develop if the society is not consolidated against Russia's plans. Let's see the news bulletin about the worst future."

However, most viewers missed this opening announcement, and there was widespread panic in Georgia, with people running from their homes, especially near the South Ossetian border, among people fearing that a new Russian invasion was actually taking place.

The fake news story is spurring controversy throughout Georgia and Russia for many reasons, not least of which is that there is some question as to whether President Saakashvili himself authorized the spoof, or at least was aware of it in advance.

Indeed, Saakashvili is quoted by Civil Georgia as saying, "But the major unpleasant thing about the yesterday's report - and I want everyone to realize it well - was that this report is maximally close to reality and maximally close to what may really happen, or to what Georgia's enemy keeps in mind."

Here's a a video from Russia Today. It contains some video from the fake report, as well as a discussion that's critical of Saakashvili.

From the point of view of Generational Dynamics, there were some interesting things about the 2008 war between Russia and Georgia. The main thing is that it was perfectly clear that the Russians and the Georgians do not hate each other. This should not be surprising, since the great genocidal Soviet dictator Josef Stalin was Georgian, and it certainly became very clear as the war progressed.

The other important thing is that the Georgians and the Ossetians DO hate each other, and each would like nothing so much as to help exterminate the other.

Thus, I've never really blamed the Russian strategy in invading Georgia in 2008, although many in the West do. The Caucasus region has historically been the theatre of many huge ethnic and religious genocidal wars, especially between Muslims and Orthodox Christians. When the conflict between Georgia and the Ossetians broke out, the Russians felt obligated to prevent it from spiraling out of control.

Nonetheless, even if the Russians and Georgians do not hate each other, they don't trust each other either, and the fake news story incident only highlights the distrust.

All sides jockey for position in Greece bailout question

Greece will present its new austerity measures to Eurogroup finance ministers at a meeting in Brussels on Monday, in the hope of getting bailed out. However, everyone's playing it cool, real cool.

Thus, AP reports that Greece does not really want money from the EU, just political support.

But German Interior Finance Minister Wolfgang Schaeuble was quoted by Reuters as saying that "there is no reason to take decisions on financial aid on Monday."


Greek debt maturing in 2010, by month <font size=-2>(Source: wsj.com)</font>
Greek debt maturing in 2010, by month (Source: wsj.com)

And French Economy Minister Christine Lagarde is quoted as saying, "I'm certainly not expecting any decision being made, or any button being pressed, or any button being selected to be pressed, because it's totally premature."

And yet, there isn't a snowflake's chance in hell that Greece will be able to meet its 20 billion euros of debt payments due in April and May, without some kind of bailout.

Additional Links

According to a new poll that's very significant from the point of view of Generational Dynamics, half of Israeli high schoolers oppose equal rights for Arabs. There's a huge secular-religious gap, where 82% of religious teens say that Arabs should not be eligible to run for the Knesset, while only 47% of secular teens agreed. Haaretz

In Malaysia, where there's violence between Christian and Muslims, Christians have been using the "Camel Method" to convert Muslims to Christianity. This method starts with the story of Isa (Arabic for Jesus) in the Koran, and uses the Arabic word for "Allah" to refer to the Christian god. NY Times

The State Department is warning Americans of danger in traveling to three Mexican states, after three people connected to the U.S. consultate in the border city of Ciudad Juarez, Mexico, were killed in drive-by shootings. It's believed that Americans are being specifically targeted by drug cartel members. The warnings apply particularly to American college students traveling to Mexican border cities next week on spring break. CNN

(Comments: For reader comments, questions and discussion, see the 15-Mar-10 News - Georgians panic over mock TV war report thread of the Generational Dynamics forum. Comments may be posted anonymously.) (15-Mar-2010) Permanent Link
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14-Mar-10 News - Sri Lanka Tamils reject homeland

A German college student validates Generational Dynamics

Tamil Tigers reject independent homeland

The Tamil Tiger rebels that fought a civil war against the Sri Lanka government for almost 30 years to gain an independent homeland have now dropped their demand for a separate homeland.

The BBC reports that the Tamil National Alliance (TNA), a political group representing the Tamil minority in Sri Lanka, plans to participate in political elections, and is seeking a "federal solution," because of the "changed global and regional situation."

From the point of view of Generational Dynamics, we've been very lucky to have been able to follow the last few years of Sri Lankan history in real time. We were able to document the transition of the Sri Lankan civil war into a full-fledged generational Crisis war in 2006, reaching a full-fledged climax early in 2009. Since then, we've seen Sri Lanka make a clear red-line transition from a "Fourth Turning" generational Crisis era into a "First Turning" generational Recovery era. Today's announcement that the formerly warring Tamils are now pursuing politics is one more example.

And this web site is the only one that got it right. Stratfor, the BBC, and other analysts and journalists were predicting that the civil war that had gone on for almost 30 years would continue in one form or another. This web site said that a climax was approaching, and that once the climax was over, then the war would be over, period.

(For more information on generational eras, see "Basics of Generational Dynamics." For more information on the progress and climax of the Sri Lanka civil war, see "Sri Lanka, Pakistan and Gaza are all following the same path.")

I renew my challenge to anyone to find an analyst, journalist, politician or web site, anywhere in the world, with anything even remotely close to the predictive success of this web site. Other analysts' predictions are no better than chance; after eight years, Generational Dynamics predictions have proved to be almost 100% correct. The validity of generational theory has been proven by the consistently correct results posted on this web site.

However, there's some more interesting news today. According to Indian news portal Sify, the Tamils, through the TNA, are vowing to launch a Gandhi-style civil disobedience campaign, in order to seek regional authority for Tamils.

What you're seeing here are the early signs of a generational Awakening era. The Tamils today are the survivors of the crisis civil war, and they're exhausted, and just happy to be alive. They will not be participating in civil disobedience campaigns, because they're just happy to be alive. Right now, all they want to focus on is recovering from the war, and rebuilding their lives.

But their children are different. Their children will grow up hearing that their parents had lost the civil war, and that they're still being discriminated against. Once they come of age, in 15-20 years, they will be ready to take part in Gandhi-style civil disobedience campaigns. That will begin the "Second Turning," the generational Awakening era.

"Recovery Era" versus "High"

I'd like to take this opportunity to discuss this difference in terminology between Generational Dynamics and Strauss and Howe's "Fourth Turning" model.

S&H refer to the first turning, the era that immediate follows the climax of a generational crisis war, as a "High" era. This is the case because in the Anglo-American crisis wars, which are the only ones that S&H consider, the Anglo-American side was always victorious in one way or another. For example, Americans of the 1950s had defeated the Nazis and defeated the Great Depression, and they were in a "High" because they thought that they could accomplish anything as a nation.

But the term "High" really applies almost uniquely to America in the 1950s. There was no "high" for the South after the American civil war, for example.

And there's certainly no "high" for the Tamils today in Sri Lanka. The same could be said for people in Rwanda and Bosnia, who are also just recovering from their own crisis civil wars of the mid-1990s.

So in Generational Dynamics, the era that immediately follows the climax of a crisis war is called a "generational Recovery era," because recovery is something that all ethnic groups, societies and nations have in common after a crisis war.

For a more complete discussion of the differences between the Generational Dynamics theoretical model and S&H's Fourth Turning model will be found in "Chapter 10 - Strauss and Howe's Fourth Turning Model" of my long languishing book, "Generational Dynamics for Historians."

A student at Mannheim University evaluates and endorses Generational Dynamics

Martin Francis Lutes, a student at Mannheim University in Germany, has done an evaluation of Generational Dynamics. He sent me the following e-mail message, and has given me permission to post it:

"I just finished reading the entire draft manuscript of your book Generational Dynamics for Historians

First of all let me say I´m convinced. My original interest lay in the application of the theory in the economic field, but since you base your theory on all kinds of historical occurences and the amount of usable market/stock-related historical data being so small, barely encompassing a single generational cycle, I wasn´t convinced by your explanation of market behaviour and financial crises based on rules, set by your theory.

The amount of bullcrap spewed around on the internet was just too big for me to believe it at first, so I started reading your other articles and posts, that were unrelated to the economy. By now, I probably read every single article written on your site, I purchased your first book and just finished reading the manuscript of your second one.

I spent many hours on historical study, I researched the most obscure events nobody ever heard off, occurring in nations nobody ever heard of, trying to find a contradiction or a hole in your theory but I couldn´t manage to find a single thing, even the German literary epochs fit in. I gave it up and had to acknowledge the genuineness of your theory. I started noticing things that complied with your theory, such as the difference in attitude, moral concepts and ideals people from different generations around me have and the growing political polarisation here (I live in Germany by the way).

It´s like a revelation, the only downside being the impossibility to convincing anybody else of it. It´s the facts stating political beliefs are in vain, crisis-wars being fought no matter what, that crisis-wars are an actual necessity and the repeating, unstoppable rise of a generation full of "visceral fear and fury". It disproves macroeconomic theory and every subfield of theory based on it. It interprets the most important, most heavily studied historical occurences in a vastly different way and attributed completely different causes and reasons for them. And lastly, which in my opinion is and always will be the biggest hindrance to achieving public recognition, the necessity of abolishing the belief that an individual has any meaning in how history plays out, and adapting to the general consensus that humanity and everything it achieves is already set by a mathematical pattern.

It´s incomprehensible to me that there are hundreds of theories in existence trying to explain why things played out like they did and trying to predict how things will play out in the future. And basically all of them, if one leaves out the math based ones, turn out to be false or contradict themselves somewhere. Nobody has any idea what's going on. Macroeconomics and concurrently every other theory based on the rules established of it has turned out to be false, all the wars and crises going on without anybody that could explain the motives and reasons, absolutely no one understanding what's going on in the Middle East. Nobody knows what going on these days, and nobody can explain them because the theories they use as a basis all turn out to be false.

If one reads the entire manuscript explaining every aspect of the theory, the only way to put it off is arguing irrationally, holding on to one's ideals even though they turn out to be false. I don´t get it, I´m an ordinary university-student, not exceptional in any way. So what lets me and the few others composing a tiny minority, let go of moral concepts, political ideals and ethical values when the models and theories they are based on turn out to be false? Why is the overwhelming majority unable to do so, when an impeccable model presents itself, which is capable of explaining every single "oddity" backed by irrefutable logic and math, while the evidence basically being the entire history of humanity?

I think the theory achieving recognition and belief in it, is dependent on the generation in power at the time. Waiting until the end of the clash of civilizations, while having definite proof that the clash itself and other things were foreseen through application of the theory long before they occurred. I really strongly believe that this has to become known. The theory explaining basically everything, while predicting singularity in the near future, resulting in the theory becoming irrelevant by then. The crap that some people won a Nobel Prize with already and stuff like this isn´t even known...

I secretly hope your theory turns out to be false. In any case I'm also going to purchase your second book when you publish it. And thanks for all the effort you put in to your site all these years."

I want to thank Mr. Lutes for the effort he put into validating Generational Dynamics, and for allowing me to post his wonderful endorsement.

Mr. Lutes is definitely NOT "an ordinary university student, not exceptional in any way." In fact, he's quite exceptional, and will go a long way.

However, I do have a couple of comments on what he's written.

First, things like macroeconomic theory are not completely disproven by Generational Dynamics. Quite the opposite, they're often consistent with and at least partially supported by generational theory.

But they are, at best, short-term forecasting and analysis tools. I frequently talk about short-term versus long-term analysis and forecasting. We can use an analogy in the case of weather forecasting. Even though we know that summer will be coming in a few months, we still find it useful to listen to the daily weather forecast to find out what the temperature will be tomorrow.

The second comment is that Generational Dynamics analysis and forecasts apply to great masses of people, entire generations of people, but not to individuals, who still have complete free will. I keep telling people this over and over: You can't prevent what's coming, but you can prepare for it. Treasure the time you have left, and use it to prepare yourself, your family, your community and your nation.

Incidentally, if anyone else out there has done any serious research, I'd welcome you publishing your research in the Generational Dynamics forum.

Why no inflation in post-bubble Japan?

While I'm talking about endorsements, I just became aware that someone who calls himself "flaskofcoffee" posted a YouTube video a year ago that references Generational Dynamics.

In 2007, I posted an article called "Will hyper-inflation make the dollar worthless (like the Weimar republic)?" in which I explained why there will NOT be hyper-inflation, but rather deflation.

According to the video, my article sparked a debate among some people in Japan as to why Japan has had no hyperinflation, even though they've had near 0% interest rates for years.

Here's the video, followed by the commentary accompanying the video:

Here is the commentary:

"This article sparked questions on potential for U.S. hyperinflation..... http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e071221

Japan has had near 0% interest rates for decades, but still has no hyperinflation... Why?

Just a personal perspective.

I have lived in Japan for a decade now, enjoying deflation (deflation is good for cash-savers) as prices remain unchanged or continued to fall.

The main things I notice about Japan is that the public has just not fallen for the bait of cheap credit since the bubble burst. Houses are perceived as a depreciating cost, only bought after due comparison to rental costs. There has been no speculative mood for property since the bubble burst. They think America was simply nuts to have followed a speculation fueled asset-inflation model which already failed so spectacularly in Japan. During the bubble, banks were lending 130% against land.

Japanese people now save for goods rather than use extended credit. That is how it seems to me, anyway.

My credit card works more like a debit card. I am asked at the point of sale if I would like to extend the terms of repayment. I always choose 'one-pay' and the full amount is automatically debited from my bank account at the end of the month. That is hardly a recipe for hyper-inflation, even at zero percent interest rates.

The culture of consumerism is alive and kicking in terms of demand for goods (lining up an hour for Krispy Kreme donuts, the latest iphone, or the privilege of paying $100 to watch two fat men in diapers rolling around in sand ), but the mentality is completely different to the West in terms of attitude to debt. Save, then buy, not the other way around. That is how it seems to me anyway and it would certainly help to explain the apparent oxymoron of deflation accompanied by cheap credit availability. Credit here is like Betamax video; great quality, but no thanks.

I'm not Japanese, but I do have an aversion to debt and live a frugal lifestyle way, way, below my means. Much to the surprise of posters on another board, I do not own a fridge. ;-) Why do I need a fridge - the shops are all within a short walking distance so I let them store the food until I want to consume it.

Yes, I realize that 'frugal' can also be termed 'tight-wad', but I am not a miser, just averse to waste.

In brief; people like me (and there are now many in Japan - they *learned* from the bubble experience) will not be the source of a price bubble in anything. Too 'frugal'. ;-)

This is very interesting, because it shows how Americans have not yet learned their lessons. They're still living on credit, because they haven't yet suffered a sufficiently bad crisis, as Japan did in the 1990s, and America did in the 1930s. The worst is yet to come, but behaviors will change because of it.

Additional Links

Palestinian protests and rioting in the West Bank have been growing since Israel's announcement, last week, that it would be building 1,600 new settlements in east Jerusalem. The Israelis imposed a security lockdown in the West Bank to prevent Palestinians from entering Jerusalem. The lockdown had been set to expire on Saturday evening, but it's now been extended until Tuesday. Haaretz

The bankruptcy report on Lehman Brothers that we wrote about yesterday is taking even experts by surprise, since they hadn't realized that Lehman was so deeply into the "Repo 105" scam. NY Times

"I’m not obsessed with history," says well-known hedge fund mogul Barton Biggs. I guess he doesn't spend much time reading this web site, does he. The history-oblivious financier added, "I’m bullish because I think the global economic recovery is on track and is going to be surprisingly strong. The world was falling apart in 2009. There’s been a tremendous change." Bloomberg

Greece has 580 job categories deemed to be hazardous enough to merit retiring early -- at age 50 for women and 55 for men -- and to allow them to start collecting pensions at that age. The law includes dangerous jobs like coal mining and bomb disposal. But it also covers radio and television presenters, who are thought to be at risk from the bacteria on their microphones, and musicians playing wind instruments, who must contend with gastric reflux as they puff and blow. Incredible! That's why Greece is in so much trouble. NY Times

Another sign of big changes in China: There have been hundreds of millions of migrant workers who moved from rural areas to eastern cities earlier in the decade, but tens of millions of them are returning home. China Stakes

China is facing massive bank bailouts, after their enormous stimulus program. Bloomberg

A presidential candidate who's not crazy? Now, THAT would be news! -- Peggy Noonan. WSJ

(Comments: For reader comments, questions and discussion, see the 14-Mar-10 News - Sri Lanka Tamils reject homeland thread of the Generational Dynamics forum. Comments may be posted anonymously.) (14-Mar-2010) Permanent Link
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13-Mar-10 News - Will 'Repo 105' scam send Lehman management to jail?

Dozens killed in new terrorist attacks in Lahore, Pakistan

Terrorist bombings in Lahore, Pakistan, kill dozens

On Friday, seven terrorist bombings struck Lahore, Pakistan, killing almost 50 people, according to the Pakistan Times.

Lahore is in the far east of Pakistan, on the border with India, and is the heart of the Punjabs, a mostly Sunni Muslim ethnic group.

According to some analysts, the bombings are being set off Punjabi terrorists as a kind of "sympathy" terrorist act for terrorists in another Sunni ethnic group, the Punjabs. The Taliban of Afghanistan and western Pakistan are from the Punjab ethnic group.

There is a Shia Muslim ethnic group in Pakistan, namely the Sindhis of southern Pakistan. Historically, Shia and Sunni Muslims have tried to exterminate each other in a number of wars, and Hindus have historically been allied with Shia Muslims in these wars.

Possibly the bloodiest war of the 20th century was the war between Muslims and Hindus that followed Partition, the 1947 partitioning of the Indian subcontinent into Pakistan and India. Generational Dynamics predicts that that war will be re-fought.

Here's how Lehman Brothers' 'Repo 105' scam worked

I've read a number of articles on the Lehman bankruptcy report on Friday. As far as I can figure out, Lehman's "Repo 105" scam worked as follows:

Lehman used these transactions to hide their financial problems until the day they declared bankruptcy. Thus, any investor who invested in Lehman in Q3 of 2008 was being defrauded.

It's incredibly sleazy, but is it illegal? I've been listening to financial pundits debate this question, and most of them say that CEO Richard Fuld, as well as other Lehman officials, would figure out a way to protect themselves, and avoid criminal convictions.

I disagree with this assessment, because it doesn't take into account changing moods. In the 1930s, bankers perpetrated the same sorts of sleaze, but it took a few years to send them to jail, as people got angrier and angrier.

The same thing is happening today, and banks charge 30% interest rates and use the money to pay themselves million dollar bonuses. The public is getting angrier and angrier, and the financial crisis is nowhere near its worst point yet.

Here's what I wrote in 2006: I have some advice for the economics experts, journalists, professors, investors, central bankers, pundits and politicians that have been telling us that everything is OK and getting better: You'd better have your underground bunker picked out, because people are going to be coming after you, and the guillotine is going to seem mild compared to the punishment that they're going to want to inflict on you.

The Lehman bankruptcy report is 2,200 pages long, and will serve as a roadmap for civil and criminal charges brought against many other financial executives who perpetrated Repo 105 scams and broke other laws.

The report was prepared by Anton R. Valukas, Chairman of Jenner & Block. You can find the entire report on their web site at http://lehmanreport.jenner.com/.

I heard one pundit on CNBC attempt to justify these scams by pointing out that Lehman management knew they were in trouble, so they had no choice but to "double down to save themselves, and hope for a run of good luck." The problem with that logic is that they're doubling down with other people's money. If you want to gamble with your own money, that's one thing, but when you gamble with other people's money, without their permission, then you're defrauding them.

Nobody believes that Lehman was the only bank using these and other scams to defraud investors. That's why so many banks had to be bailed out.

The important lesson from all this, as I pointed out yesterday, is that all of these practices are continuing today, and exactly the same people are perpetrating them. Your favorite bank or country could be close to bankruptcy, but you'd have no idea because the management is lying to everyone, and using accounting gimmicks like Repo 105. That means that your favorite bank or country could go bankrupt tomorrow, and there's no way you could even have any idea that it's coming, until it's too late.

New round of foreclosures threatens housing market


Seriously delinquent mortgages <font face=Arial size=-2>(Source: Washington Post)</font>
Seriously delinquent mortgages (Source: Washington Post)

Homeowners today with delinquent mortgages differ, for the most part, from those who were delinquent in 2008. Those consisted largely of holders of subprime mortgages, often people who couldn't make payments when their adjustable rate mortgages reset.

Today, most delinquent mortgage loan holders are people who have standard mortgages, but who have lost their jobs, according to the Washington Post. More than 75% of delinquent borrowers today have traditional prime loans. Many of them have not made any mortgage payment whatsoever in six months.

Thus, there are 5-7 million properties ready to hit the market. This is the "shadow inventory" that I've described in the past. (See "'Shadow inventory' of unsold homes continues to grow.")

Additional Links

In its strongest statement yet, Google will have to "bear the consequences" if it stops censoring search results on its Chinese web site. The implication is that Google will be forced to leave China. China Daily

In 2012, the US is scheduled to give "operational control" to a South Korean commander in the event of a war with North Korea. However, the South Koreans are seeking to postpone the transition, since they may not be ready. Asian Times

(Comments: For reader comments, questions and discussion, see the 13-Mar-10 News - Will 'Repo 105' scam send Lehman management to jail? thread of the Generational Dynamics forum. Comments may be posted anonymously.) (13-Mar-2010) Permanent Link
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12-Mar-10 News - Mideast peace talks collapse in humiliation

Obama Administration may be talking to Iran's Revolutionary Guards

Embarassing Mideast talks collapse over settlements

At a speech at Tel Aviv University on Thursday, Vice President Joe Biden once again condemned Israel's announcement earlier in the week about plans to build 1,600 additional settlements in East Jerusalem:

"Two days ago, the Israeli government announced it would advance planning for new housing units in east Jerusalem, I realize this is a very touchy subject in Israel as well as in my own country. But because that decision, in my view, undermined the trust required for productive negotiations, I, at the request of President Obama condemned it immediately and unequivocally."

Unexpectedly, Biden received applause for these words, according to the Jerusalem Post. (It would be interesting to know the age of the people applauding; at a university, we would assume that they were young students.)

Biden immediately added that he was "such a strong supporter of Israel," and that, "Quite frankly, folks, only a friend can deliver the hardest truth."

Nonetheless, Biden's trip to the region really can't be characterized as anything less than an embarassing disaster. He had hoped to launch a new round of peace talks, albeit "indirect" peace talks mediated by U.S. Middle East envoy George Mitchell. But after the settlement announcement, Palestinian President Mahmoud Abbas retracted his agreement to take part in the negotiations. These were the first negotiations of any kind since the end of the Gaza war early in 2009, and now they've been canceled after three days.

This is not President Obama's first major humiliation over the settlement issue. Last September, Obama had hoped to have a summit meeting with Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas, at which he hoped to announced that the Israelis would stop building West Bank settlements. But Netanyahu refused, so the whole thing was an just embarrasing. (See "After a week of foreign policy disasters, President Obama's entire program is adrift.")

I guess politicians have to keep playing their games and pretending that they're doing something besides wasting taxpayers' money. I've been saying the same thing since 2003, when President Bush launched his major peace plan. (See "Mideast Roadmap - Will it bring peace?") Generational Dynamics predicts that there will be a major new Mideast war re-fighting the 1948-49 war between Jews and Arabs that followed the partitioning of Palestine, and the creation of the state of Israel. There will be no peace agreement.

As if to prove this point further, the Guardian reports that Israeli authorities are actually considering plans for at least another 8,000 homes in settlements in East Jerusalem, although some of these are years away.

Debka: Obama administration is talking to Iran's Revolutionary Guards

According to Debka's weekly subscriber-only newsletter (forwarded to me by a subscriber), President Obama has given up trying to reach any accommodation with Iran's president Mahmoud Ahmadinejad, and since the last week of February has been courting Iran's Revolutionary Guard Corps (IRGC) leaders.

This idea is not nearly as insane as it first sounds. As I wrote last month in "Revolutionary Guards in Iran's government - military dictatorship?" the IRGC (also called the Pasdaran) is a huge organization, with tentacles into all of Iran's power centers.

As such, it's also representative of all of Iran's generational changes. In particular, the young "Green movement" protestors that have been filling Tehran's streets to protest Ahmadinejad's reelection are also going to be in the IRGC itself, though they may not be protesting. In my article, I concluded that the winner of Iran's Awakening era generational conflict may not be the young people in the "Green movement," but rather the young people in the Revolutionary Guards.

Thus, in fact, it makes a lot of sense for the Obama administration to be forging ties with the Revolutionary Guard.

According to the Debka newsletter:

"The Americans are also naturally au fait with the Revolutionary Guards' internal affairs and therefore aware of the fundamental change in emphasis it is undergoing, gradually evolving from an organization geared to military functions to one dominated by the financial interests of its huge business empire.

This dynamic was exhibited most prominently in the low profile its leaders maintained during the months of domestic upheaval besetting the government. Only rarely did a corps figure speak out in defense of the president or spiritual ruler. Indeed, note was taken in Washington that since January 2010, too, not a single commander has voiced support for Ahmadinejad.

The Obama administration deduced the Guards had come to regret engineering his re-election as president in June 2009. Washington hoped that this disenchantment stemmed from the same disappointment as the Obama administration felt in Ahmadinejad's continued pursuit of the most radical path in all circumstances, rather than opting for a more pragmatic nuclear policy vis-a-vis the US.

Inferring a common interest, White House strategists drew up a four-point plan for a joint US-IRGC effort to sideline the president."

This description appears to confirm the Generational Dynamics analysis of a youthful IRGC that is just as westward-looking as the general population of Iran is, especially its youth.

It's worth repeating here what I've said many times on this web site: When Iran is finally FORCED TO CHOOSE SIDES in the Clash of Civilizations world war, then my expectation is that Iran will choose the West, including the U.S. and Israel. This rapprochement between the Obama administration and Iran's Revolution Guards may turn out to be a big step in that direction.

Elizabeth Warren: Nothing has changed since near-disaster

I'm always looking for ways of describing the financial crisis in new ways. From the point of view of Generational Dynamics, nothing has changed since I started discussing this in 2002: The stock market has been in a bubble since 1995, and is still overpriced today by a factor of almost 200%, so by the Law of Mean Reversion, there will be a stock market crash to a range below Dow 3000. (See "How to compute the 'real value' of the stock market.")

A couple of weeks ago, I quoted an article by Niall Ferguson. (See "1-Mar-10 News - Harvard professor Niall Ferguson: 'America, the fragile empire.'") Most mainstream pundits and economists (like Nouriel Roubini) are arguing over nonsense like "U" or "V" shaped recessions, showing that they don't have the vaguest idea what's coming. But Ferguson is the only mainstream commentator who actually understands what's going on.

On Thursday, the BBC interviewed Elizabeth Warren, Chairman of the TARP Congressional oversight panel. (TARP is the Troubled Asset Recovery Program that was used to bail out banks.) I transcribed the interview because she made her points in a very forceful way. Warren's major point is that nothing has changed since the near-implosion of the world financial system at the time of the Lehman Brothers collapse.

The interview began when she was asked if the phrase "Too big to fail" had become a get out of jail free pass for any number of companies that should be allowed to fail.

"That's the real problem here. After TARP is gone, after we've recovered every dollar from the industry, if we ultimately do for the taxpayers, that promise will continue to hang in the air. That promise is not ephemeral. Citi [=CitiGroup = CitiBank], for example, is rated A by the rating agencies, but with a little asterisk that says, in effect, well if we rated only on their financials, and they didn't have the "too big to fail" implicit guarantee from the government, it would actually be a BB rating."

To me, this is really remarkable, something that I hadn't realized. Citibank's debt rating should be low, but it's high because there's a implied guarantee that Citibank is "too big to fail," and so if they get into trouble, then the government will bail them out again. That means that, essentially, they can bet on any crap shoot they want. If they win the crap shoot, then they split the money up among themselves in the form of million dollar bonuses. If they lose the crap shoot, then they get bailed out, and they can use the bailout money for their million dollar bonuses. It's really sickening, isn't it.

"So we have now constructed a market around the notion that there are a handful of very special companies that no matter what happens, they will be bailed out.

It ultimately cannot work because we distort the entire economic system. Think about it this way - here's Citi with this implicit guarantee from the government competing for investment dollars against a medium-sized bank that's not too big to fail or against some manufacturing outfit or service industry that has no implicit government guarantee. where are you going to invest your monley? The notion of "too big to fail" distorts markets.

If you ask me, here's the single most shocking thing: It's to be sitting here, 16-17 months after this enormous financial crisis, after we literally stared over the abyss and thought that markets might completely implode, and we're still operating under the same set of rules. We haven't changed the rules for the big guys, we haven't changed the rules for mortgages, we haven't changed any part of the rules in the system that led us to collapse."

In the next part of her interview, she gets into a historical perspective that's relevant to generational theory:

"This is a moment in history, and the consequence is the [JPMorgan Chase CEO] Jamie Dimon vision of the world.. He said in a hearing, I think it's been a little over a month now -- "well, ya know, booms and busts happen, every 5-7 years -- it's just the way the world works."

Actually no, Mr. Dimon. That was the way the world worked in the US from 1794 until the Great Depression. In the 1930s we said we can write a set of rules and do better than that. That allowed us of 50 years of economic prosperity and stability, simultaneously."

This is a very interesting way of putting it. Since the Great Depression, central bankers have developed techniques that have smoothed over the "little panics" that used to occur, so that they only appear as recessions.

The interviewer asked Warren, "So what you're saying is that if we don't go back to these sort of stringent rules, many of which were dismantled during the boom years, we'll go back to the boom/bust cycles that plagued this country in the 19th century." Warren responded:

"That's right, and Jamie Dimon has figured out how to make a profit off that. The problem is that the rest of us don't.

The rest of us get wiped out and we end up bailing out Jamie Dimon. He's too big to fail, just not the rest of us."

Warren's point is that we're doing exactly what we did that led to near-implosion of the markets, and that therefore we're headed in the same place again, and this time it might be an ACTUAL implosion. Generational Dynamics predicts that, in fact, that's exactly what's going to happen.

Additional Links

A report investigating the causes of the Lehman Brothers bankruptcy finds that the bank used "materially misleading" accounting gimmicks to hide the perilous state of its finances from regulators and investors. NY Times. As I always point out, exactly the same practices are being followed today, and exactly the same people are following them. That means that there could be a major bankruptcy of a bank or a country tomorrow, and you would never have seen it coming.

A violent general strike in Greece brought the country to a near standstill on Thursday. The strikers are protesting the austerity measures that have been announced to stave off national bankruptcy. Deutsche Welle

California's unemployment rate in January was 12.5%, its worst on record, and fifth highest in the nation. But in 8 counties of California, the unemployment rate actually exceeds 20%. These are Great Depression level unemployment rates. LA Times

Tests for prostate cancer are a mistake for most men, according to Richard A. Albin, the man who invented the test. NY Times

(Comments: For reader comments, questions and discussion, see the 12-Mar-10 News - Mideast peace talks collapse in disaster thread of the Generational Dynamics forum. Comments may be posted anonymously.) (12-Mar-2010) Permanent Link
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11-Mar-10 News - Haiti's president asks for earthquake food aid to end

A Chinese professor says that China's economic data is inaccurate.

Food aid is destroying Haiti's economy, according to President Preval

Prior to a meeting with President Obama in Washington, Haitian President Rene Preval said that he would ask for an end to food aid for victims of the Haiti earthquake, according to Reuters.

"I will tell him that this first phase of assistance is finished," he said. "If they continue to send us aid from abroad -- water and food -- it will be in competition with the national Haitian production and Haitian commerce."

(North Korea made a similar demand in 2005. See: "North Korea demands an end to U.N. food aid." In a separate story today, a UN report says that half of all food aid sent to Somalia is stolen by corrupt contractors and militants. Telegraph)

Food aid is always a very tricky business, and Preval is right to express caution. What happens is that countries that provide food aid do so with surplus crops. The country receiving the aid has its agricultural industry decimated, because farmers can't compete with the free food coming in through food aid. In other words, you have to let a few people starve before a country can feed itself again.

Thus, Preval met with Obama on Wednesday, and the Washington Post reports that Preval asked for asked for money -- tens of billions of dollars -- to help pay for Haiti's budget deficit and earthquake cleanup. However, it's not known whether Obama will agree to support financial aid to Haiti.

Many legislators are adamantly opposed to giving financial aid to Haiti because corruption is so pervasive there. It's assumed that any financial aid will go into politicians' pockets, instead of to the poor.


Poor neighborhood in Haiti
Poor neighborhood in Haiti

In 2004, I wrote an article on Haiti with the dramatic title, "Haiti - Rebellion and anarchy?" The above picture shows a poor neighborhood of Haiti. And this is a country where the U.S. had been sending massive amounts of financial aid since 1994. But the money didn't go to the people who needed it.

Haiti's troubles are blamed on American aid in a NY Times analysis of the history of food aid to Haiti.

According to the article, Haiti used to be able to feed itself easily, but has been in a 20-year nose dive, dependent on imports and food aid for 75 percent of its needs. Fields that used to be brimming with crops are now covered with grass. The blame is placed on the U.S., which forced Haiti in 1995 to adopt low food import tariffs, to provide U.S. farmers with another market. The result was that subsidized American rice pushed Haitian farmers out of business, according to the NY Times.

Additional Links

Professor Huang Yiping, of Beijing's Peking University, says that China is lying about its economic data, and it's a systemic problem. He writes for China Stakes. He says that important data is not collected, and data that is collected is inaccurate. The motive for lying about statistics is that it "bears on social stability and even the political future of local leaders, and is inevitably subject to political influence."

A new feminist alert: Bankers and financial execs who have lost their jobs and their million dollar bonuses are asking the courts to reduce their alimony payments to their ex-wives, according to FT Alphaville. Here we go again, making women suffer. See my report last year: "Feminist alert: Millionaires' mistresses and wives are biggest victims of financial crisis." How long will this misogynistic society of ours continue to victimize women?

Israel's announcement yesterday that it would build 1,600 new settlements in East Jerusalem is reverberating around the Mideast. American VP Joe Biden, who is visiting the region, condemned the announcement in very harsh language. And the Arab League, which had previously supported the "indirect" peace talks between Israel and the Palestinians, may now withdraw its support. NY Times.

"DM is the new EM" is what Morgan Stanley analysts are telling clients, according to FT Alphaville. This means that "developed markets", like Greece, Portugal, Spain, Ireland, Japan, the UK and the US, are now becoming unstable, because of exponentially growing deficits, while "emerging markets" are strong by comparison.

(Comments: For reader comments, questions and discussion, see the 11-Mar-10 News - Haiti's president asks for earthquake food aid to end thread of the Generational Dynamics forum. Comments may be posted anonymously.) (11-Mar-2010) Permanent Link
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10-Mar-10 News - Biden in Jerusalem condemns Israeli settlements

Fitch Ratings issues stern warnings to Britain, France, Spain and Greece

Israel embarasses VP Biden by announcing new settlements

Pretty much everything that can go wrong in "peace talks" happened on Tuesday, as American VP Joseph Biden was visiting Prime Minister Benjamin Netanyahu in Jerusalem.

As we described last week, the Palestinians and the Israelis endorsed "indirect" peace talks. This means that the Palestinians and the Israelis won't actually be in the same room together when they're negotiating. Instead, U.S. Middle East envoy George Mitchell will be mediating the talks, ping-ponging back and forth between the two sides.

Biden was in Jerusalem on Tuesday to launch the talks. This has already pissed off the Israelis, who note that President Obama has visited Egypt and other Muslim states, but has never visited Israel as President.

While Biden was visiting Netanyahu, Israel's interior minister announced that approval had been granted to build 1,600 new settlements in East Jerusalem, in a region that the Palestinians claim is their territory.

So, there was a big political dance. Biden condemned the settlement announcement. And, having after having embarassed Biden, Netanyahu is quoted by Haaretz as saying, "No one was seeking to embarrass you or undermine your visit - on the contrary, you are a true friend to Israel."

And so the beat goes on.

I first wrote about this subject in 2003 in "Mideast Roadmap - Will it bring peace?" As I've been saying over and over since then, Generational Dynamics predicts that there will be a major new war between Israels and Palestinians, re-fighting the 1948-49 war between Jews and Arabs that followed the partitioning of Palestine and the creation of the state of Israel.

Therefore, a peace agreement in the Mideast is impossible.

Fitch Ratings issues stern warnings to Britain and Greece

Brian Coulton, Fitch's head of Europe, Middle East and Africa sovereign ratings, warned Britains credit profile is deteriorating rapidly.

Coulton was speaking at a conference in London. The Guardian quotes him as saying that the UK is still "within tolerance" of its AAA rating, but that the UK, France and Spain all had to act with greatest urgency to avoid being downgraded.

Fitch also expresses concern about Greece

Chris Pryce, Fitch's Greece expert, also expressed great skepticism about what's going on with Greece.


Greek debt maturing in 2010, by month <font size=-2>(Source: wsj.com)</font>
Greek debt maturing in 2010, by month (Source: wsj.com)

There's a game going on with Greece that's so completely insane that only the financial community could believe it. Greece is in deep trouble, and has massive debt payments in April and May, as you can see from the adjoining graphic that I first posted a few days ago.

So everybody is pretending that there's no problem, in order to fool investors into believing that there's no problem. Thus, Greek Prime Minister George Papandreou met with President Barack Obama in Washington today. Politico quotes him as saying:

"We haven't asked for financial help. We are not asking for a bailout. We are not asking for financial help from anyone. ...

We are taking measures to put our own economy on the right track. And that has been recognized and hailed by many leaders."

This is a very interesting statement, because the austerity measures taken so far by Greece are generating a lot of social unrest, but they're still not nearly enough to put the economy on track. And yet, he's right that they've been "hailed" by many leaders, especially German chancellor Angela Merkel, because nobody wants to spend any money bailing out Greece. So we have this neat game, where people say that no bailout is needed, in the hope that just saying it will mean that no bailout is needed.

Fitch's Pryce is not counting out the need for a Greek bailout, and agrees that this game of "constructive ambiguity" has succeeded in calming the markets, but noted that not a single "hard cent" has been put on the table for Greece so far. "The great question mark is whether the Papandreou government is going to conform [to the austerity requirements demanded by others]. There is already dissent in the cabinet," as quoted by The Telegraph.

Pryce added that "Greece has an appalling record. Underneath this fiscal crisis is a failing political system. Politicians regard the public sector as a something to exploit for their own enrichment, but also for votes."

Finally, Pryce points out that "Even if German politicians wanted to bail out Greece, they know it would probably be overturned by Germany's constitutional court."

The Asian crisis of 1998

According to Fitch, the Europeans are counting on on a "Korean" recovery, modelled on Korea's fast return to trend growth following the Asian crisis in 1998. Countries in Asia suffered a big financial crisis in the late 1990s, but they recovered quickly, and many politicians and financial analysts are expecting (or hoping) that the same thing will happen in the current financial crisis. Although Fitch only attributes this hope to the European, it's also one of the reasons why American investors are expecting a rebound.

There are two reasons why the 1998 Asian situation does not apply and cannot apply to today's situation.

First, there was a huge dot-com bubble going on in the United States at that time. Korea and other countries were able to recover quickly by manufacturing products and exporting into that bubble.

The second reason is generational. The world is a very different place today than it was in 1998. In 1998, the Boomers were in charge. They're incompetent, but they had enough sense to ask the few people left from the Silent generation what to do, and then to do it. But today, the world belongs to Generation-Xers, and Generation-Xers don't have the vaguest idea what to do, and have no one that they can ask for guidance, or even that they WANT to ask for guidance.

In the Financial Topics thread of the Generational Dynamics forum on Tuesday, we had a discussion on whether the year-long stock bull market is "tired." My response was: "I don't see the market as tired at all. What I see is a market that's manic. Sure, maybe it has bloodshot eyes, and it's lost the spring in its step. But it's drinking coffee and taking amphetamines, afraid that if it falls asleep then ... it'll spiral even further into insanity. So the question I keep asking myself every day is this: How long can it pump itself up with drugs to keep going, and what will happen when the drugs finally stop working?"

Additional Links

With Facebook and Twitter now taking the lead in social networking web sites, the one-time leader MySpace is facing tough times, resulting in a management shake-up and deep layoffs. Now, MySpace is planning a site overhaul, in order to regain market share. Reuters

As I've said many times, bankers are turning into the most hated group in America, because they're doing exactly the same kinds of things they were doing in the 1930s -- screwing their customers and using the money to pay themselves huge bonuses and salaries. Slowly but surely, the bankers are beginning to realize how much trouble they're in, especially as new federal rules box them in. Thus, Bank of America is going to stop charging $40 overdraft fees on debit cards this summer, and instead will simply decline purchases. NY Times

(Comments: For reader comments, questions and discussion, see the 10-Mar-10 News - Biden in Jerusalem condemns Israeli settlements thread of the Generational Dynamics forum. Comments may be posted anonymously.) (10-Mar-2010) Permanent Link
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9-Mar-10 News - Muslims in revenge massacre against Nigeria Christians

Hackers use Facebook to penetrate corporate networks

Faluna Muslims massacre Christians in Jos, Nigeria, on Sunday


Nigeria
Nigeria

Hundreds of Christians were shot or hacked to death by Faluna Muslims on Sunday. According to the Times Online, they were targeted killings, thought to be revenge killings for Christian killings of Muslims in January. (See "20-Jan-10 News - Hundreds die in Muslim-Christian riots in Nigeria.")

Jos is in the middle of Nigeria, right on the fault line between Muslims who live in the north and Christians who live in the south.

Nigeria's last crisis war as the Nigerian civil war, or Biafran war, fought from 1967-69 between Muslims and Christians. It's now been over 40 years since that war ended, time enough for occasional spurts of renewed violence to occur, but not yet time enough for a full-scale civil war to begin again.

Facebook as a 'Spear-Phishing' tool

A really mind-blowing study has been conducted that shows how hackers, using information gleaned from Facebook, can penetrate an entire corporate computer network. The study is described in Dark Reading.

The company performing the study, Secure Network, actually performed these tests themselves, to prove how easy it is to hack into a corporate network.

They start by going to a Facebook site for company employees, and they harvest e-mail addresses and personal information about the employees. They get into the Facebook site by using a bogus identity, pretending to be an employee.

Then they set up a web site that looks like the company web site, but with a slightly different domain name, to make it look like a human resources web site. If the company web site is xyz.com, then the fake web site is xyz-company-benefits.com, for example.

They then send personal e-mail messages to the employees for whom they have e-mail addresses, directing them to log in to the fake web site using their company credentials.

Here's the amazing part: Nearly 50% of the employees who receiving these "spear-phishing" messages respond to the e-mail message by logging in to the fake web site with the logins and passwords that they use on their employer's network. The hackers can then collect this information, and use it to penetrate the network.

The more I learn about computer security, the more amazed I am about how easy it is for hackers to hack into people's computers. And it's not like you see on TV, where the CSI guy or the NCIS girl sits at a computer, types some clever commands, and breaks into a remote network in time for the next commercial. What you see on TV is simply impossible.

No, computer hacking works another way -- by fooling people, by using an ever-growing variety of tricks to get you to trust them into giving you the information they want. And Facebook is an ideal medium in which to gain your trust.

Far-left Obama supporters show Obama morphing into Bush

This is a good time to remind everyone that, from the point of view of Generational Dynamics, the great events can be neither caused nor prevented by politicians. Instead, they're caused by great masses of people, entire generations of people. Thus, for example, President Bush didn't make a serendipitous decision to make the ground invasion of 2003; he was forced to do it by public panic over weapons of mass destruction, and that Al Gore would have made the same decision if he'd been president after 9/11. (See: "The Iraq war may be related to the bombing of Hiroshima and Nagasaki.")

And during Barack Obama's presidential campaign, I was bitterly critical of his campaign promises that were blatantly absurd. He was going to heal the world with his mere presence -- cure global warming, provide universal health care, close Guantanamo, leave Iraq in peace, bring a two-state solution to Palestinians and Israelis, beat the Taliban in Afghanistan, restore the stock market bubble, and dismantle President Bush's war against terror. Nothing was beyond his reach. I indicated that he would fail at all of these objectives. This was just common sense.

Increasing, the loony left has been turning against Obama because he didn't magically heal the world like he promised. On Sunday, the ACLU purchased a full page ad in the NY Times:


ACLU ad showing Barack Obama morphing into George Bush
ACLU ad showing Barack Obama morphing into George Bush

For some reason, the thought of Obama morphing into Bush strikes me as funny. If you'd like to read the text that accompanied the ad, see the press release from the ACLU web site.

Many on the loony left that got Obama elected are now viciously turning against him for not fulfilling his campaign promises, which could never have been fulfilled anyway. They really should cut him some slack, but then they wouldn't be loony, would they?

Additional Links

Greek Prime Minister George Papandreou is visiting Washington, and gave a speech calling for greater regulation of speculators, as if that were even possible. He said that Greece is not looking for money without cracking a smile. He said that if the Greek financial crisis worsens, then it would negatively affect the U.S., which is true. MarketWatch

There's talk among European officials to establish a new "European Monetary Fund," similar to the International Monetary Fund (IMF), except that it would be set up to bail out European countries like Greece. (Irish Times) However, other European officials are already shooting the idea down. (Reuters) From the point of view of Generational Dynamics, there will be plenty of great ideas and new proposals, but none of them will be adopted until after the Clash of Civilizations world war. Only at that time will people be willing to make the sacrifices necessary to prevent a new war from happening again.

News you can use: Women who drink moderately tend to gain less weight in midlife, though the same conclusion does not apply to heavier drinkers. LA Times

(Comments: For reader comments, questions and discussion, see the 9-Mar-10 News - Muslims in revenge massacre against Nigeria Christians thread of the Generational Dynamics forum. Comments may be posted anonymously.) (9-Mar-2010) Permanent Link
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8-Mar-10 News - Iraq elects a new government

Iraq's democratic elections are contrasted with Iran's election last year

Chaotic Iraq election is last one planned with American troops present

Millions of Iraqis voted in Iraqi elections on Sunday, despite terrorist threats and attacks that killed 38 people. These attacks, which are thought to be perpetrated by al-Qaeda in Iraq, were intended to discourage voting. The threats and attacks may have partially succeeded, as early figures indicated a turnout of 50-60%, compared with 76% in 2005, according to Times Online.

With all American troops scheduled to be withdrawn by the end of 2011, this is the last major Iraqi election where American troops will be present. Thus, it's important that Iraqis accept the validity of this election, according to the article. A Western diplomat is quoted as saying, "If Iraqis don’t have a sense that the next government speaks and stands for them, then they are likely to turn away from the democratic political process. When they see only chaos they are more likely to accept the return of a strongman ruler."

President Barack Obama made the following televised statement.

"Today, the people of Iraq went to the polls to choose their leaders in Iraq’s second national election. By any measure, this was an important milestone in Iraqi history. Dozens of parties and coalitions fielded thousands of parliamentary candidates, men and women. Ballots were cast at some 50,000 voting booths. And in a strong turnout, millions of Iraqis exercised their right to vote, with enthusiasm and optimism. ...

As expected, there were some incidents of violence, as al Qaeda in Iraq and other extremists tried to disrupt Iraq’s progress by murdering innocent Iraqis who were exercising their democratic rights. ...

On behalf of the American people, I congratulate the Iraqi people on their courage throughout this historic election. Today, in the face of violence from those who would only destroy, Iraqis took a step forward in the hard work of building up their country. The United States will continue to help them in that effort as we responsibly end this war, and support the Iraqi people as they take control of their future."

I particularly wanted to quote the first sentence of the second paragraph above. Apparently it's now OK to talk about al-Qaeda in Iraq now, a phrase that could not be uttered by the left during the Bush administration. Isn't politics wonderful?

As for myself, I haven't materially changed my analysis of the Iraq war since I first wrote about it in 2003, and fully analyzed when the "surge" began early in 2007. (See "Iraqi Sunnis are turning against al-Qaeda in Iraq.") At that time, there was no better analysis of what was going on in Iraq in any publication in the world that I was aware of, and that analysis still tells you more about Iraq than most analyses today.

That analysis, which was based on Generational Dynamics theory, started from the fact that Iraq is in a generational Awakening era. It drew on historical sources, particularly what was happening in Iraq's previous Awakening era, in the 1930s, to reach some conclusions about what's happening today. If you change some of the names and dates, then the two Awakening eras are remarkably similar. In particular, the results of an American withdrawal will be similar to the results of a British withdrawal in the 1930s-40s. The British withdrawal led to chaos that eventually gave rise to the brutal dictatorship of Sadaam Hussein, and that will happen again in time.

Iraq's Grand Ayatollah al-Sistani versus Iran's Ayatollah Khamanei

One of the most fascinating potential effects of the Iraq election is hardly touched upon by the mainstream press: Its effect on Iran.

Iran and Iraq are in the same Awakening era, having fought the bloody Iran/Iraq war that ended in 1988.

Iran has an increasingly dictatorial government, formed by survivors of the Iran/Iraq war. There was an election last year that was widely viewed as fraudulently reelecting Mahmoud Ahmadinejad as president, widely opposed by an opposition "Green movement."

Iraq would undoubtedly also have an increasingly dictatorial government, had it not been for the American ground invasion, and the capture and execution of Saddam Hussein. This also resulted in a shift in power from a Sunni-dominated government to a Shia-dominated government, with an evidently fair election held today.

Both countries now have a full generation of young people with no personal memories of the Iran/Iraq war. These young people, in both countries, can see and compare Iran's increasingly dictatorial government with Iraq's government, currently democratic and free.

What effect will the fair Iraq election have on Iran's Green movement, as they compare it with their own election last year? That's the question we wish to ask.

In 2004, I wrote a lengthy article comparing Iraq's Awakening era today to America's Awakening era in the 1960s. (See "Iraq Today vs 1960s America.")

In that article, I compared the role of Martin Luther King in the 1960s to Grand Ayatollah Ali al-Sistani in Iraq today. I received some criticism for that comparison, but from the point of view of generational theory, it made sense. Both King and al-Sistani were survivors of the preceding crisis war (WW II and the Iran/Iraq war, respectively), and they were both using their political skills to promote peace and reconciliation.

An article by Abbas Djavadi in RFERL points out that Tehran wants the U.S. to withdraw its troops from Iraq, but is troubled by the possible consequences of withdrawal too soon.

In another article, Djavadi compares Iraq's spiritual leader Grand Ayatollah Ali al-Sistani, with Iran's Supreme Leader, Ayatollah Ali Khamenei.

The differences are stark, as described by Djavadi. Iran's original supreme leader, Ayatollah Ruhollah Khomeini, took on the office of supreme leader in 1979 after promising that he wouldn't. After his death, his successor, the current supreme leader Ali Khamanei, wasn't even an ayatollah until he was hastily "promoted" in order to take on the political office.

By contrast, Iraq's al-Sistani is a higher cleric ("grand ayatollah" versus "ayatollah") than either of Iran's supreme leaders. More important, al-Sistani has eschewed any political role, but provides a traditional Shia cleric role of giving advice, based on Islamic principles.

According to Djavadi, who has a large family of relatives in Iran, most Iranian Shia today respect Iraq's al-Sistani as their spiritual advisers. He concludes, "With their aggressive policy of distancing themselves from the foundations of Shi'ite Islam and the intensifying oppression, Khamenei and his lieutenant, Ahmadinejad, are gradually ensuring the alienation of the majority of the Shi'ite faithful."

Almost none of this has broken through to the mainstream press as yet, but as the Awakening era progresses in both Iran and Iraq, and as the clerics in Iran's government continue to disgrace themselves among Shia Muslims, the role of Iraq's Grand Ayatollah Ali al-Sistani could become extremely important in the politics of both countries.

Additional Links

Investors become increasingly convinced that the Greek financial crisis has ended, as they return more fully to the risky investments they were pursuing prior to the 2007 financial crisis. Bloomberg

The Palestinians, who are extremely skeptical (as am I), agreed on Sunday to "indirect" peace talks with Israel. These talks will be mediated by U.S. Mideast envoy, George J. Mitchell. NY Times

(Comments: For reader comments, questions and discussion, see the 8-Mar-10 News - Iraq elects a new government thread of the Generational Dynamics forum. Comments may be posted anonymously.) (8-Mar-2010) Permanent Link
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7-Mar-10 News - 1985 Live-Aid concert for famine relief may have been a scam

U.S. budget defict grows again -- by $1.2 trillion.

BBC investigation: Money from Bob Geldof's 1985 Live-Aid concert went for weapons

The BBC claims credit for bringing the 1985 Ethiopian famine to the world's attention in the first place. He provided on-the-spot coverage of a famine "of biblical proportions," and galvanized public opinion for a massive aid effort, including internationally televised concerts, led by Bob Geldof, with rock stars from around the world. Geldof raised $144 million in the Live Aid concert in 1985.

Now, 25 years later, the BBC says that after a year of investigation, it turns out that most of the money went for weapons, not for food.

That's because there was a war going on between Ethiopia's Russian-backed government and an American-backed rebel group, the Tigrayan People's Liberation Front (TPLF). And the famine was taking place in an area controlled by the TPLF.

And so, Geldof and all those nice folks collected millions of dollars, and turned it over to the TPLF, after getting them to promise that they'll spend it on food for the starving masses. Instead, they spent 5% of the money on food, and 95% of the money on support for military and political campaigns, according to the BBC report. (To listen to the full 25 minute report, click here or here.)

As I do so many times when I read the news these days, I just have to shake my head in incredulous disbelief. It really took them 25 years to figure this out??? The TPLF were rebels fighting a civil war. OF COURSE they were going to spend the money on weapons. OF COURSE they were going to take your money and lie to you. Wouldn't you do the same if you were in that position? What kind of moron do you have to be to think otherwise?

Well, no matter. According to Sky News, Bob Geldof and his Band Aid trust are going to make an official complaint to the BBC, and other international aid organizations will be joining in, claiming that the new claims are based on "dubious sources and rumour," without "a shred of credible evidence."

Well, who cares? It's no crazier than anything else going on in the world today, is it?

Additional Links

President Barack Obama’s budget proposal would create bigger deficits than advertised every year of the next decade, with the shortfalls totaling $1.2 trillion more than projected, according to the Congressional Budget Office. This announcement was made late on Friday, the slowest news period of the week. Bloomberg

As expected, Iceland voters have rejected the referendum paying $5.3 billion to Britain and the Netherlands over the failed IceSave bank. NY Times. My expectation is that the debt will never be paid. But my expectation is also that America's debts will also never be paid. How can they be, when the deficit keeps growing?

Iranian President Mahmoud Ahmadinejad said that the September 11 attacks on the United States were a "big fabrication" that was used to justify the U.S. war on terrorism. Reuters

News you can use: Idle chit-chat can make you depressed. Telegraph

(Comments: For reader comments, questions and discussion, see the 7-Mar-10 News - 1985 Live-Aid concert for famine relief may have been a scam thread of the Generational Dynamics forum. Comments may be posted anonymously.) (7-Mar-2010) Permanent Link
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6-Mar-10 News - Iceland votes whether to give in to Britain and Holland

Greece's Prime Minister Papandreou visits German's Chancelor Angela Merkel

Iceland poised to infuriate Britain and Holland

I've been writing since 2006 that Iceland had turned itself from a country into a giant hedge fund. In February, 2006, the Iceland krona currency suddenly collapsed, after the Fitch ratings agency downgraded Iceland's debt from "stable" to "negative," citing economic imbalances. (See "Sudden collapse of Iceland krona portends bursting of 'carry trade' bubble.")

So Fitch Ratings knew that Iceland was in trouble, and I knew that Iceland was in trouble. Apparently the only people who didn't know it were the Icelanders, the British and the Dutch, because they were still encouraging everyone to invest in the IceSave savings plan that paid very high interest rates.

The Lehman Brothers collapse in fall, 2008, caused the IceSave hedge fund bubble to burst, and Iceland's government collapsed early in 2009.

Britain and the Netherlands were forced by politics to reimburse their citizens who had lost money in an IceSave account, and they demanded that Iceland reimburse their two countries.

Britain and the Netherlands really turned the screws on Iceland. Britain froze the assets of the Icelandic banks at the height of the crisis, using a law intended to freeze the assets of terrorists. This has infuriated the Icelanders. (See "Iceland begs for mercy as Europe turns the screws.")

After months of acrimonious negotiations, Iceland's Parliament approved a bill to pay $5.3 billion to the governments of Britain and the Netherlands. This is the equivalent of $16,400 for each man, woman and child in Iceland.

Then in January of this year, Iceland's president Olafur Ragnar Grimsson caused an uproar by refusing to sign the Parliament's bill. Instead, he called for a referendum, to allow the voters to decide. The referendum is taking place this weekend, on Saturday.

On Friday, I saw President Olafur Ragnar Grimsson being interviewed on Bloomberg TV. Here are some excerpts (my transcription):

"[W]hat has happened since I made that decision [to have the referendum] is that everybody now agrees that that deal that you now describe is an unfair deal. The British and the Dutch recognized that by putting a new deal on the table on March 3, and everybody in Iceland has recognized that as well.

So we are on the basis of a referendum hopefully moving forward to a better and fairer deal.

[Question: You could use money from the IMF.]

No, I don't think so. Let's look at this. Iceland agreed to a program with IMF. We have in fact outperformed every criteria which the IMF put forward. but why aren't we getting the IMF loan? Because the British and the Dutch are using these international isntitutions as a bargaining power with respect to Iceland, and that is not respectable for an institution like the IMF. ...

A week agao, the British and the Dutch put on the table an offer which was a good step forward. But .. that offer still involved a profit element for Britain and the Netherland, in addition to reimbursing every depositor in those countries.

And the profit element, if you put it with the size of the British economy would be tantamount to 9 billion pounds profit. What we're simply saying now, let us make a deal. Let us do this in a reasonably fair way, without those countries making such huge profit on the deal. ...

[T]he essence of what is taking place here is that ordinary people, farmers and fisherman, taxpayers, doctors, nurses, teachers, are being asked to shoulder through their taxes a burden that was created by irresponsible, greedy bankers, and what I did was to say it is important that that decision to be taken with the people being allowed to vote on it."

The anger being expressed by Grimmson and by Icelanders in general is palpable. Polls indicate that 74% of Icelanders will reject the referendum on Saturday, according to Iceland Review. (Paragraph modified - 6-Mar. I apologize for some embarrassing spelling errors in an earlier version.)

Without the reimbursements, Britain and the Netherlands have promised to inflict financial revenge on Iceland. Politicians are dreading what will happen after the referendum's results are in.

The Greek crisis is over. Huh?

Friday morning's EuroIntelligence briefing begins with: "'Greek crisis over' – Our ability to delude ourselves has reached the next level."

Investors were so ebullient that they pushed stocks up 1-2% in Europe and on Wall Street.


Greek debt maturing in 2010, by month <font size=-2>(Source: wsj.com)</font>
Greek debt maturing in 2010, by month (Source: wsj.com)

What brought on this lightheadedness? It's that Greece was able to raise 5 billion euros on Thursday by borrowing money via bond auctions, according to WSJ.

However, the same article also warns that "a looming wave of debt auctions by other European countries could make it difficult for Athens to raise the rest of the money it needs." And it's going to need a lot more, especially during April and May of this year, as you can see from the above graph.

Generational Dynamics predicts that the crisis is far from over, and that Europe and the world will be witnessing a full-scale financial crisis, worse than the 1930s Great Depression, before things are "normal" again.

A love letter from Germany to Greece

Here's a Reuters translation of a letter published in German's BILD newspaper, written to Greek Prime Minister George A. Papandreou, who met with German Chancellor Angela Merkel on Friday:

"Dear Prime Minister,

If you read this, you have entered a country that is quite different from your own. You are now in Germany.

Here, we work until we're 67-years old... Here, we don't have to pay anyone a 1,000-euro bribe for a hospital bed."

And yes, Germany also has high debt, but we can pay it. We wake up early and work hard, because we want to save our money for a rainy day; and because we have companies, whose goods are in demand around the world."

Prime Minister, we want to be friends with Greece. That's why we've given your country 50 billion euros since you joined the EU. But let's be clear: A good friendship requires you to be honest."

Meanwhile, AFP reports that Germans are suggesting (possibly in jest, but we can't be sure) that Greece should sell off its Mediterranean islands to get the cash to pay its debts.

The financial situation continues to worsen in Europe. The amount of anger and acrimony is growing in both the Greece and Iceland cases, and it will only continue to grow.

Additional Links

"ObamaCare will have been a colossal waste of time -- if we're lucky." -- Peggy Noonan in WSJ.

You may recall that in the 2008 war between Russia and Georgia, Georgia's computers were hacked, and Russia was blamed. But now the Russian hackers who attacked Georgia's computers have written a more sophisticated version of their software, and they're using it to hack Russian and Ukrainian computers. Dark Reading

At the annual National People's Congress in Beijing, prime minister Wen Jiabao boasted of China's economic successes in 2009, and bragged that China was the only country that had survived the worldwide financial crisis almost unscathed. NY Times

Lots of people try to diet, but what works for one dieter may not work for others. For example, some people do well with low-carb diets, while others have done better with low-calorie diets. Now a new gene test by Interleukin Genetics Inc., in Waltham, Mass., can be used to find out which diet is best for each person. WSJ

(Comments: For reader comments, questions and discussion, see the 6-Mar-10 News - Iceland votes whether to give in to Britain and Holland thread of the Generational Dynamics forum. Comments may be posted anonymously.) (6-Mar-2010) Permanent Link
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5-Mar-10 News - Dutch elections give boost to right-wing Geert Wilders

Greece reaches new crisis point, as Greece calls EU's bluff

Geert Wilders' right-wing party are winners in Dutch elections

When the Dutch government collapsed on February 20 over the question of whether Dutch troops will continue to serve in Afghanistan (see "21-Feb-10 News - Dutch government collapses over Afghanistan"), the fear was that the collapse would trigger a rise in power of the far-right anti-immigrant, anti-Muslim politician, Geert Wilders, head of the Party for Freedom (PVV).

That prediction has now taken one step further to coming true.


Geert Wilders <font face=Arial size=-2>(Source: NRC Handelsblad)</font>
Geert Wilders (Source: NRC Handelsblad)

The collapse forced local parliamentary elections on Wednesday, and there were big symbolic victories for the PVV candidates. The victory is only "symbolic" because PVV competed in only two cities (the Hague and Almere), and did unexpectedly well in both cities. Furthermore, some polls indicate that if voters had elected an entire new parliament, the PVV would have been the largest single party, according to NRC Handlesblad, although other polls dispute that.

Wednesday's election was closely watched because it indicates what might happen in the national elections on June 9.

Many commentators see this as a major change to the political landscape, according to Dutch News. The PVV will almost certainly not be a majority winner in June, but they may win enough votes to become kingmakers in the coalition government that have to be formed with the other parties (Labour, Christian Democrats, and socialists). One Dutch News commentator, Robin Pascoe, say, "Wilders' constant emphasis on 'our culture' and 'our values' is having an insidious effect. It is slowly chipping away at the acceptance of all foreigners in the Netherlands, where ever they come from. And it is that hardening of attitudes which will be most damaging to the Netherlands in the long run."

The polarization of politics

There were also winners on the left in the Dutch elections. The left wing liberal D66 party earned the most seats elsewhere in the country (NRC Handlesblad).

From the point of view of Generational Dynamics, this is part of a worldwide move toward political extremes (far left and far right), as we go deeper into a generational Crisis era.

Thus, in the Netherlands, we see the growth of left wing and right wing parties.

In Greece, we're seeing leftist groups rioting and demonstrating.

In Britain, we see the right-wing British National Party (BNP) generating a great deal of controversy, because the party leader, Nick Griffin will take part in nationally televised election debates, as reported by The Independent.

In America, we have some left-wing loons in the MoveOn.org dominating the news, while some right-wing loons in the Tea Parties capture media attention.

As these countries go deeper into a generational crisis era, the political debates will go increasingly from bickering to extremism and, in some countries, violence.

German/Greece acrimony increases over requests for IMF help

Prime Minister George A. Papandreou is calling the European Union's bluff.

On Wednesday, he announced severe austerity measures that are infuriating to many Greeks. The unions are furious at the substantial cuts in public sector employees' pay. Pensioners are facing triple pain: A freeze in pensions, an increase in taxes, and, thanks to unemployment, an inability ask their kids for help.

The cuts amount to 4% of Greece's GDP. Since the budget deficit is about 13% of the GDP, these austerity cuts, if implemented, would reduce the budget deficit to 9% of GDP.

"If implemented" is the operative phrase. As The Economist points out, the cuts are extremely unpopular, although polls show that over 60% of Greeks accept that tougher measures are needed.

Nonetheless, these are the austerity measures that the EU had demanded. Having met his part of the bargain, Papandreou is now demanding EU aid to get through the most immediate crisis -- $27 billion in the next two months to roll over expiring debt. On Friday, he's going to Berlin to meet with German Chancellor Angela Merkel about this question.

However, Merkel has already snubbed Papandreou, according to Bloomberg, saying that the Friday meeting won't be "about aid commitments."

I actually saw Merkel make that statement on the BBC, and she looked like she was ready to kill somebody. I don't want to make too big a deal out of one brief statement on TV, but I think I can say with certainty that Merkel will not be welcoming Papandreou's visit with open arms.

Surprisingly, Papandreou does have some leverage over Merkel and the Europeans. After visiting Berlin, his next stop will be Paris, to visit with French president Nicolas Sarkozy. Then he's on to Washington, to meet with Barack Obama and, even more important, to meet with the International Monetary Fund (IMF), to request financial assistance from them. It would be a humiliation to the EU if the IMF has to bail out Greece.

The Germans are furious about the idea of rewarding Greece's years of profligate spending by bailing them out. A compromise may be worked out, however, where Germany's banks loan the money to Greece, and Germany guarantees the loans. In that way, Merkel will avoid direct aid to Greece, and still keep Greece from defaulting on its debt.

China claims that its military budget growth is slowing


China's announced military budget, 2000-2010 <font face=Arial size=-2>(Source: CS Monitor)</font>
China's announced military budget, 2000-2010 (Source: CS Monitor)

China's military spending has been growing a double-digit rates each year for 20 years, but this year Beijing announced that its budget would grow by 7.5% in 2010. However, many analysts believe that the actual figures are much higher, according to CS Monitor.

My own view, as I've stated several times before, is that China has taken advantage of its aggressive fiscal stimulus program in 2009 to pour a lot more money into the military. This is the logical thing to do in a centrally-controlled economy, and it's what Germany and Japan successfully did in the late 1930s.

Additional Links

Turkey has recalled its US ambassador after Congress's Foreign Affairs Committee passed a resolution describing the World War I battles between Turks and Armenians as genocide by the Turks of the Armenians. CS Monitor

A new machine under development is a commercial 3D bio-printer for manufacturing human tissue and organs -- in other words, a machine that prints organs. The Economist reports that it will cost $200,000, that a prototype has already been developed, and it will be used to order replacement body parts on demand.

There's a new form of vigilante justice being practiced widely in China, where it's called "human flesh searches." If someone does something (real or imagined) that's politically incorrect, then information is posted on social web sites. Groups of "human flesh searches" across the country cooperate to identify the alleged offender, find out where he lives and who his friends and relatives are, and exact revenge. NY Times

Scientists find mathematical formula for the perfect wife. Telegraph

(Comments: For reader comments, questions and discussion, see the 5-Mar-10 News - Dutch elections give boost to right-wing Geert Wilders thread of the Generational Dynamics forum. Comments may be posted anonymously.) (5-Mar-2010) Permanent Link
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4-Mar-10 News - 'Indirect' Israeli/Palestinian peace talks begin

South Africa's Jacob Zuma picks out a wife for his visit to the Queen.

'Indirect' Palestinian / Israeli peace talks to begin on Sunday

The Arab League has endorsed an American plan for "indirect" peace talks between the Palestinians and the Israelis. According to Haaretz, U.S. Middle East envoy George Mitchell will be mediating the talks.

These peace talks are a dance that has been going on for decades. Peace talks are announced, much to the approval of the mainstream media and the politicians. Usually the talks break down with no agreement, but if there is an agreement, then it's ignored.

When the Bush administration released its "Mideast Roadmap to Peace" in 2003, one of the first major prediction I wrote for this web site was that it would fail. (See "Mideast Roadmap - Will it bring peace?") From the point of view of Generational Dynamics, the Mideast is headed for a major war, re-fighting the genocidal war between Jews and Palestinians that followed the 1948 partitioning of Palestine and the creation of the state of Israel.

Since 2003, there have been three wars: Israelis vs Hizbollah in Lebanon in 2006, Palestinian Fatah vs Hamas in Gaza in 2008, and Israelis vs Hamas in Gaza in 2009.

There have been no peace talks at all since the Gaza war, and after the war ended, Palestinian leader Mahmoud Abbas was humiliated because he was unable to get the Israelis to agree to stop building Jewish settlements in the West Bank. Abbas declared that there would be no more peace talks until Israel stopped building settlements.

That's why these are "indirect" talks. George Mitchell will apparently be ping-ponging back and forth between the two sides, hoping to get a peace treaty sealed, which Generational Dynamics predicts is impossible.

South Africa's president Jacob Zuma chooses a wife to meet the Queen

So you think you have trouble picking out what shoes to wear? Well, Jacob Zuma has to decide which wife to take to London with him to visit Queen Elizabeth.

Polygamy is permitted among Zulus, and South Africa's president Jacob Zuma has three wives, not including two other wives, one who died, and one whom he divorced. The latest wife is Thobeka Madiba Zuma, and he married her two months ago. Thobeka is accompanying him on the trip to London, so that trip combines statecraft with a honeymoon, according to South Africa's Independent Online.

South Africa still has not fully recovered from the massive influx of refugees from Zimbabwe in 2008. (See "South Africa will create 'temporary shelters' for migrants, not 'refugee camps.'" This article also contains a generational history of South Africa.)

Zuma may be in London to escape his problems at home. Times Online reports violent protests and demonstrations in Sharpevile over Zuma's failure to keep his campaign promises. Sharpeville is historically important, as the site where 70 peaceful black protestors were shot dead by white police.

Additional links

An article in Asian Times compares the scenario unfolding in Europe to a Greek tragedy and to an American dinner theatre. The article is very funny and astute, and with so little humor around these days, it's worth a read.

Want to build a nuclear weapon in your basement? Spiegel tells you where to find directions.

The head of Russia's Olympic Committee has resigned, after Russia recorded its worst performance at the Vancouver games. (BBC.) Last week, Russian President Dmitry Medvedev blew his stack at the poor performance of his country's Olympic athletes, and called on Olympics officials to resign. (BBC.)

(Comments: For reader comments, questions and discussion, see the 4-Mar-10 News - 'Indirect' Israeli/Palestinian peace talks thread of the Generational Dynamics forum. Comments may be posted anonymously.) (4-Mar-2010) Permanent Link
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3-Mar-10 News - Greece crisis continues, as opposition to bailout remains

Japan begins its third 'lost decade.'

The Germans appear to be hardening their position against a bailout of Greece

Otmar Issing, an adviser to Chancellor Angela Merkel, and a former ECB economist, has laid out solid arguments rejecting aid to Greece from either Germany or the EU, according to Frankfurter Allgemeine (translation).

Criticism of Greece is widespread for having lied about its budget deficits to qualify to be part of the euro currency. Issing points out that Greece has already gotten enormous benefits out of the euro, and has drawn substantial monies from EU funds, and now, "Let me be very clear: You have to watch the Greeks' every move."

As for EU funding, that would violate the Lisbon Treaty on the European Union. "There is the so-called "no bail-out" clause of the Treaty. ... That is a ban, and I think that the contract must be respected."

Other German newspapers take a more cautious approach, talking about vague assurances to Greece, according to a summary by Reuters. Thus, Die Welt says, "The Germans will have to help the Greeks to stop their own country being hit -- even if hardly anyone wants to hear this (yet). The danger is too great that countries such as Spain will get into trouble. The euro zone faces a financial crisis at state level that it can barely manage alone."

It's difficult to know how to assess remarks like these. It's like saying, "We have to have health reform" or "We have to save the world from global warming" or "We have to save the people in Darfur," but nothing ever happens. That's because, in a generational crisis era like this one, there is little political consisus, and political discussion is almost always reduced to bickering.

To make matters worse, Der Spiegel reports that corruption is "booming" in Greece. According to the article, Greeks paid an average of $1,800 in bribes last year, up 23% from 2007. The bribes go for speeding up getting driver's licenses, getting admitted to public hospitals, or manipulating tax returns.

In my opinion, the only thing that can unite Europeans enough to talk seriously about a Greek bailout is a major financial crisis. Until that happens, there will be nothing but bickering, but after that happens, it will be too late.

Prime Minister Papandreou wants to 'avert disaster'

The Greeks are well aware of the attitudes of the Germans and others, and are working desperately to try to convince the Europeans that Greece will cut its budget deficit. The EU has set a March 16 deadline to show progress in reducing its deficit.

The NY Times quotes Prime Minister George A. Papandreou as saying, "We are in a race against time to keep our economy alive. "If we don’t ensure that we can borrow at the same rates [as other European Union countries' the consequences will be beyond catastrophic. We must avert such a disaster."

On Wednesday, Papandreou is expected to announce severe austerity measures on Wednesday, including reduced bonuses, a later retirement age, and numerous new fees and taxes. However, Greece's public sector unions have threatened a 24-hour strike for March 16, the date of the EU deadline.

As I've said many times before, there is no solution to this problem. Greece cannot solve its problems without a bailout, and a bailout is politically impossible. If we assume that somehow a bailout occurs, then the political backlash would be enormous, and it wouldn't be enough to solve Greece's problems, or to solve the same problems in the other European countries nearing default.

Japan begins its third 'lost decade'

It's always hard for me to believe the Pollyannish nonsense that I hear all the time on CNBC and Bloomberg TV, or read in the Wall Street Journal.

I doubt that many long-time readers of this web site could possibly still believe that nonsense, but for those that do, Michael "Mish" Shedlock has a blog entry entitled, "I'm Sure Glad The Recession Ended." In it, he has several interesting graphs and charts showing that the recession has definitely NOT ended.

He also has the following chart of the Nikkei index from the Tokyo Stock Exchange, from 1980 to the present:


Nikkei stock index, 1980-present <font face=Arial size=-2>(Source: Mish Shedlock)</font>
Nikkei stock index, 1980-present (Source: Mish Shedlock)

Japan had a huge stock market and real estate bubble in the 1980s, which burst at the beginning of 1990. People talk about Japan's "lost decade," but as this graph shows, Japan has had two "lost decades," and is about to start a third decade.

Notice that along the way there were several year-long rallies, and the rally from 2002 to 2007 lasted a full five years.

Those who cling to the belief that the Wall Street stock market is only going to go up should contemplate this chart. The Japanese financiers and bankers are fully as intelligent as American and European financiers and bankers. There is absolutely no reason to believe that a similar collapse long-term collapse won't occur in New York, London, or Frankfurt -- or Shanghai.

In fact, Japan has had some major advantages that America, Europe and China won't have. Japan was able to get through its lost decade by exporting products into the countries in the massive credit bubble. But America, Europe and China won't have any other countries in a credit bubble to export into.

As I've said many times, from the point of view of Generational Dynamics, the situation hasn't changed. The stock market has been historically overpriced by substantial amounts since 1995, and by the Law of Mean Reversion, will have to fall sharply and stay down there for a comparable length of time (15 years). This is a mathematical certainty. (See "How to compute the 'real value' of the stock market.")

Additional links

How does a young Pakistani, raised by proud parents who sent him to medical school, turn into a terrorist militant? The NY Times gives an interesting case history.

Richard Holbrooke is President Obama's special envoy to Afghanistan, but he's now expanding his portfolio to all of Central Asia, according to Asian Times. If Hillary Clinton steps down as Secretary of State, then Holbrooke is the likely candidate to replace her.

The British pound currency has been falling precipitously against the dollar in recent days, due to a budget deficit that is arguably much worse than Greece's. NY times.

(Comments: For reader comments, questions and discussion, see the 3-Mar-10 News - Greece crisis continues, Japan's 3rd lost decade thread of the Generational Dynamics forum. Comments may be posted anonymously.) (3-Mar-2010) Permanent Link
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The politics of the 'Generation Zero' documentary movie

The movie reflects a continuing political realignment.

An article entitled "Preparing for the Inevitable Bursting Bubble" appeared in the NY Times over the weekend. It begins, "Financial bubbles are a way of life now. They can upend your industry, send your portfolio into spasms and leave you with whiplash. And then, once you’ve recovered, the next one will hit."

My eyes popped out when I saw that article. The NY Times and the mainstream media didn't even BELIEVE in bubbles a few years ago. People used to call me crazy for talking about a housing bubble. Mainstream financial analysts, economists and journalists would say, "Housing prices can't go down -- people have to live somewhere," and "Banks won't foreclose -- it's not in their interest to do so" and "These housing construction firms know what they're doing, and they wouldn't be building houses if it were just a bubble."

What's astonishing is the complete public turnaround in attitudes towards bubbles and the budget deficit. And this is one of the major issues capturing the attention of the Tea Party movement. This movement is moving rapidly to provide a new definition for the "right" side of the political spectrum. No one can be sure what the new "right" will encompass, but we can be sure that personal and financial security will be a big part of it.

How is the left adapting to this emerging new definition of the right?

The left is on the defensive these days. This isn't surprising from a historical point of view. I first wrote about this during the 2004 election, in "Does history favor George Bush or John Kerry?" Very briefly, the argument is that the Republicans "won" the Civil War crisis era, the Democrats "won" the Great Depression / WW II crisis era, and so now the pendulum is swinging back to the Republican side in the current crisis era -- and by this, I really mean the new "right."

The left has adapted by adopting the message that everything will be all right, that there shouldn't be too much concern about personal and financial security, and that people who talk about personal and financial security are using scare tactics.

Is it all the fault of the Boomer hippies?

Steve Bannon, the writer/director of "Generation Zero," told me that when the movie was shown at a Republican convention a couple of weeks ago, the audience loved the last 2/3 of the movie, but hated the first 1/3, because even Republicans don't like the idea that "hippies" and "flower children" and the "Woodstock generation" are being blamed for the financial crisis. This goes against the narrative that in the 1960s the Boomers wanted to change the world -- and that they succeeded.

And yet, that's becoming a dominant theme of those who criticize the movie.

An article entitled "Did Woodstock hippies lead to US financial collapse?" in CS Monitor quotes film producer David Bossie as saying that generational narcissism, as represented by the 1969 Woodstock Festival, is responsible for the excessive spending, mortgage crisis, and recklessness on Wall Street. The article quotes him as follows: "The people who were at Woodstock turned into the yuppies of the '80s and the junk bond traders of the '90s and the Wall Street executives of the 2000s. They went from Woodstock to driving a Jaguar."

The other side of the argument is taken up as follows:

"Quantifying baby boomers as yuppies is a familiar position taken by conservative groups, says Leonard Steinhorn, author of "The Greater Generation: In Defense of the Baby Boom Legacy."

Mr. Steinhorn says it is common for boomers to become a target, because their generation helped "reverse the social order of the '50s" by creating civil rights for blacks, women, and gays, and by helping address issues such as environmental pollution.

"Not every boomer was a hippie, but the normative structure of the baby-boom generation has been for a more inclusive, equal, and free society, and so if you have problem with that, you’re going to have problem with boomers," he says."

That the arguments about the movie "Generation Zero" are centering on these points about the hippies is a consequence of a decision made by Steve Bannon. I've been writing on this web site for years that the financial crisis was possibly ONLY through the cooperation and greed of both the Boomers and the Gen-Xers -- the nihilistic Gen-Xers to perpetrate the frauds, and the full support of their Boomer bosses.

Bannon chose to leave this material out of the movie, so that the conclusion of the movie is that the Boomers are SOLELY responsible for the financial crisis (which is impossible, of course, since everybody knows that Boomers are too dumb to have done it alone).

(See also "New documentary movie 'Generation Zero' brings generational theory to the public.")

Bush administration vs Obama administration

I've been writing the same kinds of things about generational theory on this web site since 2002, but only in 2010 is the subject getting wider public attention. What's changed?

I've been warning about a financial crisis since 2002. During the Bush administration, this message would not have been of interest to Republicans because it appeared to be criticizing Bush, and it would not have been of interest to Democrats because it appeared to be scaring people.

During the Obama administration, things changed. The message is not of interest to Democrats, because it's still scaring people, but now it's of interest to Republicans because it appears to be criticizing Obama.

The omission of any criticism of Gen-Xers adds to the film's controversy, by allowing the political arguments to be framed as either a criticism or a defense of Boomers.

From the point of view of Generational Dynamics, the "personal and financial security" message will win, and will force a political realignment of some kind. How big the realignment will be, and how far to the right the country will move, will depend on how deep the crisis becomes.

(Comments: For reader comments, questions and discussion, see the Generation Zero - The Inconceivable Truth thread of the Generational Dynamics forum.) (2-Mar-2010) Permanent Link
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1-Mar-10 News - Real estate and Greek crises

Harvard professor Niall Ferguson and 'America, the fragile empire'

Mish Shedlock analyzes the commercial real estate crisis

Michael "Mish" Shedlock has pulled together several stories on the worsening crisis in commercial real estate in his blog.

Here are some of the facts pulled together by Shedlock:

If you do the math on this, according to Shedlock, then expect to see a thousand commercial bank failures in the next couple of years.

The commercial real estate crisis is coming later than the residential real estate crisis. There's a huge, growing "'Shadow inventory' of unsold homes" in the US, ready to trigger a housing panic, and a commercial real estate panic is now a parallel possibility.

Greece and the euro face another tough week

In the face of large public sector union strikes, opposing the austerity measures that Greece is facing, Prime Minister George Papandreou has been using very strong language. He's quoted by the Greek newspaper Kathimerini as telling Parliament that additional "harsh" measures are required:

"Unfortunately, history has confirmed our worst fears. Our duty today is to forget about political cost and think only about the survival of the country. Past policies make it necessary to proceed with harsh changes.

The dilemma we face is: Are we going to let this country go bankrupt or are we going to react?

We became the weak victim, the guinea pig. We stood unprotected before the markets’ wild appetite.

We must do whatever we can now to address the immediate dangers. Tomorrow, it will be too late and the consequences will be much more dire."

There have been conflicting reports and speculation over whether the EU will find a way to bail Greece out. France's AFP quotes German Chancellor Angela Merkel as saying on Sunday that there would be no bailout.

Merkel denied that any such plan was in the works, saying "there is absolutely no question of it. We have a (European) treaty under which there is no possibility of paying to bail out states in difficulty."

On the other hand, an EU audit of Greece's finances begins on Monday, and there is speculation that the audit will lead to some kind of bailout.

Papandreou is planning to visit Merkel in Berlin on March 5, and Barack Obama in Washington on March 9, according to Kathimerini. Presumably the purpose of the trips is to beg for mercy.

As in the areas of US residential and commercial real estate, the Greek situation in particular, and the European situation in general, is also ripe for a panic.

Harvard professor Niall Ferguson: 'America, the fragile empire'

Harvard professor Niall Ferguson's latest book is "The Ascent of Money: A Financial History of the World," and he narrated a PBS documentary by the same name.

In his article, "America, the fragile empire," in the Los Angeles Times, he describes how history is filled with "fat tail" events that occur suddenly, and cause the collapse of a society or nation almost overnight.

He describes nations and empires as "complex systems" where a small event can produce huge, often unanticipated changes. This, of course, is the process described by Chaos Theory that I've described many times.

Here's an example:

"The most recent and familiar example of precipitous decline is the collapse of the Soviet Union. With the benefit of hindsight, historians have traced all kinds of rot within the Soviet system back to the Brezhnev era and beyond. Perhaps, as the historian and political scientist Stephen Kotkin has argued, it was only the high oil prices of the 1970s that "averted Armageddon." But this did not seem to be the case at the time. The Soviet nuclear arsenal was larger than the U.S. stockpile. And governments in what was then called the Third World, from Vietnam to Nicaragua, had been tilting in the Soviets' favor for most of the previous 20 years.

Yet, less than five years after Mikhail Gorbachev took power, the Soviet imperium in central and Eastern Europe had fallen apart, followed by the Soviet Union itself in 1991. If ever an empire fell off a cliff, rather than gently declining, it was the one founded by Lenin."

The very rapid collapse of the Soviet empire is a recent example that shows what can happen to America:

"One day, a seemingly random piece of bad news -- perhaps a negative report by a rating agency -- will make the headlines during an otherwise quiet news cycle. Suddenly, it will be not just a few policy wonks who worry about the sustainability of U.S. fiscal policy but the public at large, not to mention investors abroad. It is this shift that is crucial: A complex adaptive system is in big trouble when its component parts lose faith in its viability."

This is EXACTLY the kind of thing that I've been talking about for years.

I hope that one day Niall Ferguson has a chance to familiarize himself with Generational Dynamics, because it provides a theoretical underpinnings for his warnings.

For example, those commentators who talk about "fat tails" or "black swan events" seem to imply that they could happen at any time. Generational theory tells us that's not true. The kind of panic and collapse the Ferguson describes could not happen during a generational Recovery Era, or Awakening era, or Unraveling era. For example, a 1929-style stock market panic could not have happened in 20 years earlier in 1909, or 20 years later in 1949. It happened at the right point in the generational cycle. Such a panicked collapse can only happen in a generational crisis era, such as we're in now. In fact, using specialized terminology, it's such an event transforms a "pre-regeneracy" crisis era into a full-fledged crisis.

The issues described earlier -- commercial and residential real estate, the Greek financial crisis -- are examples of areas where a small event might trigger a panic.

Additional links

Peace talks between Pakistan and India have moved disappointingly slowly, because they have conflicting agendas. India is laser-focused on terrorism, while Pakistan wants to discuss the broader issue of the future of Kashmir. Asian Times.

Whether the Persian Gulf should be called the Arabian Gulf is one of the many issues separating Persian Muslims from Arab Muslims. The disagreement even caused the scrapping of the Islamic Solidarity Games, the Olympics of the Muslim world. NY Times. This is just one more manifestation of the growing Sunni-Shia divide.

(Comments: For reader comments, questions and discussion, see the 1-Mar-10 News - Real estate and Greek crises thread of the Generational Dynamics forum. Comments may be posted anonymously.) (1-Mar-2010) Permanent Link
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