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


Web Log - December, 2004


Yukos nationalization may set the pattern for Russia in 2005

There was more high comedy last week, as the Kremlin completed the nationalization of the major assets of oil giant Yukos.

Forced into bankruptcy by the Kremlin, Yukos auctioned off its major asset, a subsidiary called Yuganskneftegas, two weeks ago. The financial world was shocked to learn that the auction was won by the previously unknown Baikal Finance Group, which was evidently a neighborhood liquor store, in a village 100 miles from Moscow.

Well, surprise, surprise! Baikal turns out to be a front for a Kremlin-owned oil company Rosneft. And Rosneft had already been scheduled to merge with Gazprom -- the company that outside observers had expected to win the Yukos auction!

So now we're going to have new oil giant, consisting of Yukos' former subsidiary Yuganskneftegas, combined with Rosneft and Gazprom.

It's pretty obvious that Russian President Vladimir Putin had been planning something like this all along, as soon as he jailed former Yukos CEO Mikhail Khodorkovsky last year for political reasons.

But there's more, oh so much more. Who's going to be in charge of the newly merged oil collossus? None other than Putin's number two man, hard-core security advisor Igor Sechin.

Now get this: Sechin's daughter recently married the son of Prosecutor General Vladimir Ustinov, who is in charge of the case that drove Yukos to bankruptcy!!

So Putin not only managed to nationalize Yukos, but he even kept it all in the family!

This is all really vile stuff, of course, but it shows how skillful Putin is, and how ruthless he is in taking any assets he pleases. As I've previously said, there's little doubt in my mind that he's going to bring the same steely determination to making sure that Ukraine's resources don't slip out of his hands.

When I first wrote about Yukos last July, I said that it appeared that Putin planned to nationalize Yukos, because it looked like he was following the example of Nicolai Lenin (Vladimir Ilyich Ulyanov) when he confiscated the immense wealth of the Russian Orthodox Church in 1917, prior to the Bolshevik Revolution.

The reason that I was right about Putin and Yukos, when other commentators were wrong, is that I used the correct type of historical analogy.

From the point of view of Generational Dynamics, when you're making any sort of historical comparison, you must compare only to previous periods at the same point in the generational cycle. Thus, Russia is in a crisis period today, and I made a historical comparison to Russia's previous crisis period.

Every day you can see a lot of nonsense on television and in newspapers because journalists, pundits, and high-priced analysts keep comparing America and Iraq today to America and Vietnam in the 1960s. That's why they make one dumb mistake after another in their predictions. America is in a crisis period today, and was in an awakening period in the 1960s; Iraq is in an awakening period today, and Vietnam was in a crisis period in the 1960s. There is absolutely nothing comparable about America today and America in the 1960s.

I've successfully compared America today to America's last crisis period, World War II. For example, that's why I've been predicting with certainty for over two years that there would be no anti-war movement, and there hasn't been one. You can easily see how comparable the two periods are when you realize that America locked up innocent Muslims after 9/11 in exactly the same way that America locked up innocent Japanese during World War II. This is no mere coincidence; it's how nations and societies act during crisis periods.

I've also successfully compared Iraq today to 1960s America -- something that works because those were both awakening periods.

And if you want to know what's going to happen in Iraq, then please, stop comparing it to El Salvador in the 1980s, as I heard several politicians do on this past Sunday morning's news shows.

Instead, compare Iraq today to Iraq's last awakening period, the mid to late 1940s. That's a valid historical comparison to make.

Returning now to Russia and Putin, if you want to do historical comparisons, then the best place is to continue to compare Putin to Lenin in 1917. Lenin's brutal policies are in Russia's blood, and are certainly in Putin's blood. I'm told there's an old Russian saying, "If they don't know what to do - then they do what they know," and that certainly applies here. (29-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

China's "sacred responsibility" is to stop Taiwan independence by force

A national defense white paper issued Monday by China threatens to use Chinese armed forces "to stop the Taiwan independence forces from splitting the country,"

The white paper accuses Taiwan of using the independence issue to incite the Taiwanese people's hostility toward the mainland. It condemns Taiwan's purchase of military weapons and equipment from the U.S., and adds, "Should the Taiwan authorities go so far as to make a reckless attempt that constitutes a major incident of 'Taiwan independence', the Chinese people and armed forces will resolutely and thoroughly crush it at any cost."

China has substantially increased its defense budget in the last two years, and the new white paper says that the nation will maintain current troop levels at the current 2.3 million soldiers and will promote technological warfare to thwart any independence attempt by Taiwan.

The white paper comes just after a news leak Sunday that China's National People's Congress is finalizing a new "anti-secession" law. The new law calls for "peaceful unification" of China and says that China would resort to "non-peaceful approaches" to deal with Taiwan under "necessary situations."

Taken together, these two new policy positions represent an increase in the level of confrontation with both Taiwan and America. Beijing has previously threatened war in case Taiwan President Chen Shui-bian went ahead with announced plans to amend the Constitution in 2008 to move towards independence.

But the new statements not only extend the forbidden actions to any "reckless attempt that constitutes a major incident of 'Taiwan independence," whatever that means, but also wires the warning into firm Beijing policy and law, rather than just talk.

From the point of view of Generational Dynamics, this escalation goes to the nuts and bolts of the theory. Every nation goes through genocidal crisis wars every 70-90 years or so, and China's last one was the civil war between Mao Zedong and Chiang Kai-shek from 1934 to 1949. Between crisis wars, a country goes through specific generational changes, referred to as an "austerity" period, an "awakening" period, an "unraveling" period, and then back to a "crisis" period.

The transition from unraveling period to crisis period represents a major change in public opinion, caused by the fact that risk-averse people in the generation that grew up during the last crisis war all disappear (retire or die) all at once, and are replaced by risk-seeking people in the generation born after the war. This major generational change is characterized by going from an unraveling period, in which problems are solved with compromise and containment, to a crisis period, when problems are solved with confrontation and risk taking.

That's what the new China policy seems to be doing. It's much more confrontative than previous policies have been, and indicates that the people of China are moving from risk-avoiding unraveling policies to risk-seeking crisis policies.

A key to understanding the new Chinese policies is the phrase, "to stop the Taiwan independence forces from splitting the country," This indicates that Beijing sees China in danger of coming apart, and blames Taiwan. One part of this is the recent increase in regional rebellions, as we're recently discussed. But note that the anti-secession law is directed not only at Taiwan, but also to China's western provinces, Tibet and Xinjiang, which are also threatening secession. Beijing cannot afford to let Taiwan move toward independence, since doing so would encourage Tibet and Xinjiang to do so as well.

America has already entered a crisis period, having done so after the Nasdaq crash in 2000, and especially after the 9/11 attacks in 2001. America's policy was extremely confrontative: invasion of Afghanistan and then Iraq, locking up Muslims, and restricting individual rights through such mechanisms of the Patriot Act.

In fact, these kinds of crisis-era changes are taking place around the world. Russia's President Vladimir Putin has aggregated enormous new powers in the last year, including the abolishment of local elections, in favor of political appointments by Putin. Putin's nationalization of oil giant Yukos is evidently a part of an emerging pattern.

In Pakistan this week, President Pervez Musharraf has officially reneged on his promise to give up his control of the armed forces, Since he held dual roles as civilian leader and head of the armed forces, he had promised to give up his armed forces role by the end of 2004, but has now said he will not do so.

And we've recently seen the re this kind of dynamic in the Netherlands, where they're talking about deporting Muslims who can't pass a citizenship exam.

These countries are all moving in the direction of asserting national rights over individual rights. The reason that all of these countries are moving in this direction at the same time is because we're at a unique time in history, about 60 years after the end of World War II, when every country is experiencing the same generational change at the same time: The people in the generation that fought in WW II are all disappearing (retiring or dying) all at once, and are being replaced by the people in the generation born after WW II.

Slowly but surely (or maybe not so slowly), the world is moving, step by step, toward a new world war, a "clash of civilizations" world war. As described in the discussion of the six most dangerous regions of the world, that time might not be too far off. (28-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Up to 50,000 workers riot and clash with police in southeast China

As income disparities and food problems continue to grow in China, incidents of social unrest have been increasing throughout China.

China and its provinces <font size=-2>(Source: The Economist)</font>
China and its provinces (Source: The Economist)

Yesterday's incident occurred in Guangdong province, near the border of Hunan province. It was triggered by a traffic accident, which led to a confrontation, which led to major riots, as workers clashed with local security forces.

The same kind of thing happened last month in central China, when a traffic accident triggered violent clashes between Muslim and non-Muslim Chinese.

Guangdong is a historically significant region for riots. China's last two crisis civil wars both began in this region. The Taiping Rebellion began here in 1852, and Mao Zedong's Long March began here in 1934. In each case, the results were devastating for China. The rebellion spread north to Beijing and out into the midlands, killing tens of millions of people each time. If the current rebellion grows and spreads, deaths will once again reach the hundreds of millions.

Generational Dynamics predicts that there will a new country-wide rebellion within the next few years, with near 100% certainty.

China is currently in a "generational unraveling" period, with the overheated economy in a bubble that may burst at any time. Mao's entire social structure, which required peasants to remain on the farm and factory workers to live in the cities, is unraveling. Individual peasant farms are being taken over by large farming businesses, and tens of millions of peasants have been forced into the cities as migrant workers for their livelihood, where they're ill-prepared to cope with financial problems that may arise.

Guangdong province has been a major beneficiary of the new economy, as it's one of the wealthiest provinces, earning about $2,000 per year per person, but is adjacent to Jiangxi and Guangxi provinces that earn only $100-200 per person per year. These enormous income disparities form a major engine of the social unrest.

However, an analysis in the new issue of Taiwan Journal indicates that food is an increasingly critical issue. According to the article, industrial construction and erosion are eating up 0.5% of China's farmland each year. China has lost 2/3 of its farmland in 40 years, but has 2.3 times as many people.

(Using my standard benchmark measure of 0.96% annual increase in food production per acre of farmland, the above figures mean that the amount of food per capita is ((2 / 3) / 2.3) * (1.0096^40) = 42% of what it was 40 years ago.)

China's food problems are consistent with what's happening in the rest of the world. A Washington Post analysis earlier this year indicated that food prices are skyrocketing around the world. This is happening because of the "Malthus Effect," which causes the population to grow faster than the food supply, except during major genocidal wars. This causes food to become relatively scarce, causing food prices to rise. China has particularly added to this problem in the couple of years, as it's been importing food to feed people in its overheated economy.

This makes China's food problems are especially critical, when combined with the other problems. If there's a recession in China in 2005, and some analysts are predicting there will be, then China won't be able to import enough food to meet its shortfall, and migrant workers will be unable to get jobs and make money to send back to their families in rural areas. This is certain to foment further social unrest. (26-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

This is Christmas eve.

Let's have no more doom and gloom for a day or two.

For one day, no talk about high P/E ratios, or dangerously high expectations. For one day, I'll forget that this is the saddest project I've ever worked on in my life.

For now, I'll be like the journalists, pundits and analysts you see in the news:

Merry Christmas, everyone! (24-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Tomorrow is the 90th Anniversary of the 1914 Christmas Truce

One of the most remarkable occurrences in modern warfare occurred just a few months after World War I had begun.

On December 24, 1914, the German and British soldiers laid down their arms, crossed into the "No Man's Land" separating their trenches. They sang Christmas carols, played games, and shared jokes and beer with one another. The war resumed shortly after Christmas.

Christmas truce drawing from the London News of January 9, 1915.  The drawing's caption reads, in part, "British and German soldiers arm-in-arm and exchanging headgear: a Christmas truce between opposing trenches. Drawn by A. C. Michael."
Christmas truce drawing from the London News of January 9, 1915. The drawing's caption reads, in part, "British and German soldiers arm-in-arm and exchanging headgear: a Christmas truce between opposing trenches. Drawn by A. C. Michael."

Although there are varying stories of how the truce happened, there is little doubt that it did occur, as the adjoining drawing shows.

This story illustrates how different World War I was from World War II.

From the point of view of Generational Dynamics, World War II was a generational crisis war, but World War I was not.

Can you imagine Hitler's German troops and Churchill's English troops singing Christmas carols and playing games at the beginning of World War II? That would have been impossible.

World War I is now an almost completely forgotten war in America, except for its name. Because of the similarity of names between World Wars I and II, and because Americans fought Germans in both wars, most Americans between that WW I and WW II were similar to one another.

In fact, World War I was much more similar to our Vietnam war than it was to World War II.

World War I was very politically divisive for both America and Germany. America actually remained neutral between England and Germany for several years, and only entered the war in 1917, to much political dissent. To this day, many historians still consider America's entry in WW I to have been unwise. In a recent survey of historians's views on the "greatest" and "least great" presidents, the two presidents voted the "most controversial" were Bill Clinton and Woodrow Wilson. Wilson was considered controversial because he was the President who entered America into World War I, despite enormous political opposition.

World War I was just as politically divisive for Germany. Germany did not start WW I, as many people naïvely believe. WW I started in the Balkans and spread to Russia. Germany was "accidentally" forced into the war because of a long-standing treaty with Austria which obligated Germany to invade France because France was an ally of Russia. England was pulled into the war because of a previous agreement with France. Germany's incredible capitulation at the end of 1917, long before it was necessary, occurred because the German people were so politically angered by the war. Essentially, Germany capitulated in WW I for exactly the same reason that America capitulated in the Vietnam War -- because of enormous political opposition back home during a "generational awakening" period. (Incidentally, WW I was a crisis period war for Russia, just as the Vietnam war was a crisis period war for Vietnam.)

By contrast, WW II was a crisis war for Germany (as well as England and America). That war was no "accident." Hitler planned his attack on France and England for years in advance, in secret, and Hitler kept on fighting long after it was clear that Germany would lose.

So, the Christmas truce of 1914 is a unique, sentimental story to think about in this holiday season, as we realize with sadness that there'll be no Christmas truces in the "clash of civilizations" world war that's just around the corner. (23-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Americans support additional restrictions on Muslim-Americans

48% of Americans want restrictions on the civil liberties of Muslims, according to a poll conducted by Cornell University.

Over 700 people were interviewed for the survey, which gauged their support for different kinds of restrictions on the civil liberties of Muslim Americans. The results show that Americans are increasingly willing to restrict Muslim Americans, even those who are ordinary citizens with jobs and families and no suspicion of crime.

And the feelings are mutual. As we discussed in July, Arab views around the world are becoming increasingly hostile to America.

This is the kind of thing that happens in every nation and society during generational crisis periods. America's last generational crisis period was World War II, and at that time we locked up innocent Japanese-American citizens in camps. The feeling was mutual then too, as Japanese and Americans increasingly hated each other in the 1930s, leading up to WW II.

Furthermore, this is the kind of dynamic we've been seeing in the Netherlands, where they're talking about deporting Muslims who can't pass a citizenship exam.

We've also described some other major changes in American public attitudes on this web site, including:

All of these trends point in the same direction: The American public is increasingly concerned about terrorism, the future of America, and the future of the American way of life. They're increasingly willing to give up individual rights for the safety and unity of the nation. This is what always happens during a generational crisis period, and these trends will continue to increase as we approach the "clash of civilizations" world war.

In the Cornell University poll, each of the respondents was asked to agree or disagree with each of the following statements:

Statement % Agree
All Muslim Americans should be required to register their whereabouts with the federal government. 27
Mosques should be closely monitored and surveilled by U.S. law enforcement agencies. 26
U.S. government agencies should profile citizens as potential threats based on being Muslim or having Middle Eastern heritage. 22
Muslim civic and volunteer organizations should be infiltrated by undercover law enforcement agents to keep watch on their actiities and fundraising. 29

Approximately one-quarter of respondents agreed with each statement, with the infiltration of Muslim civic and volunteer organizations garnering the most support (29%).

Overall, nearly half of all respondents (48%) supported one of the possible restrictions on Muslim American civil liberties, with 29% of all respondents supporting two or more type of restrictions.

The Cornell poll also asked the respondents some related questions about civil liberties, and compared them to the responses given in their pool in 2002:

  #   Statement % Agree
% Agree

1 Government should have greater power in monitoring Internet activities such as email and online transactions, 4741
2 Law enforcement officials should be able to indefinitely detain suspected terrorists, 6357
3 We need to outlaw some un-American actions, even if they're Constitutionally protected, 4741
4 Government officials sometimes need to lie to the press about military operations, 4857
5 In a time of crisis or war, the media should NOT cover anti-war protests, 3330
6 In a time of crisis or war, the media should NOT report comments of individuals who criticize the government, 3131
7 In a time of war or crisis, individuals should be allowed to stage public protests against the government or its policies, and lastly 6062
8 In a time of war or crisis, individuals should be allowed to criticize publicly the government, or its policies. 6365

From the point of view of Generational Dynamics, these results are as expected. Americans are increasingly less concerned about civil liberties, and increasingly more concerned about national survival. This trend will continue.

This is all part of a historical realignment of both political parties that will occur in the next ten years. (21-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Now we know - Baikal is a neighborhood liquor store

High comedy continued on Monday, as Russian officials stonewalled on the new owner of Russian oil giant Yukos' assets.

The previously unknown Baikal Finance Group won the assets at an auction on Sunday when their principal rival, Gazprom, made a phone bid and was evidently ordered not to make a higher bid. Baikal's winning bid was about half analysts' estimates of the assets' actual worth.

So who's Baikal? Well, the company is registered in Tver, a city 100 miles northwest of Moscow, at 12 B Novotorzhskaya Street. Reporters going to that address discovered a 3-story building constructed before the (1917) Russian revolution. The only things located on the first floor were London café, Dionis liquor store and Volga grocery store.

An employee at the bar, Valentina Vasilieva, said in an interview there wasn't even a sign for Baikal in the building and she never counted any oil tycoons among her clientele. "We would immediately have noticed them," she said, according to the Wall Street Journal

According to the BBC World Service, there's another angle that almost guarantees that Yukos' assets will soon be completely owned by the Kremlin. Yukos' major creditor is the Kremlin, thanks to huge tax assessments levied against the company. Baikal has 14 days to come up with the $9.4 billion that it bid, and if it fails, then Russian law says that its assets will go to the largest creditor - the Kremlin. So it's possible that Baikal is simply an empty shell company with no money, set up as a ruse to nationalize Yukos. (20-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

After a week of high comedy, who the heck is Baikal?

Baikal Finance Group, an unknown company with unknown backers, is the new owner of Yukos' principal asset, its Yuganskneftegaz subsidiary. after their $9.4 billion bid won at auction on Sunday.

Yukos is the Russian oil giant that President Vladimir Putin's government has been determined to nationalize for over a year. The game began when Yukos' CEO Mikhail Khodorkovsky announced that he was going to challenge Putin politically. Khodorkovsky was almost immediately jailed in October, 2003, and Sunday's auction completes the destruction of the company that Khodorkovsky once headed. It's not really a game for Khodorkovsky, however, since he's still in jail, and may never get out.

The bidding at the auction lasted just 10 minutes. The representatives of the company that expected to win, Gazprom, appeared shocked at being outbid by Baikal, but did not have the funding to top Baikal's bid. Gazprom is controlled by the Kremlin, so ownership by Gazprom would mean that the Kremlin had succeeded in nationalizing Yukos.

The auction was the climax of several days of high comedy. In an attempt to prevent the bankrupt Yukos from being auctioned off, Yukos' lawyers went to an American bankruptcy court in Houston, Texas (!!!!), to get the auction stopped. And the Houston court obliged, ordering the Russian government not to hold the auction on Sunday. The bankruptcy court's ruling was upheld on Saturday evening by an American federal appeals court.

Well, guess what? Russia held the auction anyway. But Gazprom didn't win, as expected. Baikal did, and no one knows who or what Baikal is.

The Houston court ruling did have one major impact: It meant that Deutsche Bank and other European banks that had been planning to finance Gazprom's bid announced that they were backing out since, even though a Russian court couldn't be bound by a Houston court, a European bank doing business in the U.S. could indeed suffer serious consequences.

So here's one possible explanation of what happened: The Houston court ruling may have forced the Kremlin to abandon acquisition plans by Gazprom, and move in a different direction. It's possible that Baikal is simply a front for the Kremlin, or perhaps for Gazprom. Either way, it's pretty certain that Putin has finally succeeded in getting his hands on Yukos.

From the point of view of Generational Dynamics, this is all part of a pattern where Putin is repeating the kinds of actions pursued by Nicolai Lenin, leading to the Bolshevik Revolution of 1917, and the ensuing decade-long civil war that killed tens of millions of people.

I find myself very impressed by Putin's ingenuity in nationalizing Yukos this past year. He could have simply ordered the company taken by force, but that would have infuriated the international community. Instead, he wove a complex web of tax assessements, regulatory rulings, and court suits. It took him a year to nationalize Yukos, but he did it with a veneer of legality that gave him plausible deniability. Analysts in international community have not really been fooled, but there's really nothing that they can point to as a "smoking gun" proof that the nationalization was illegal.

I get exactly the same feeling when I see what's happening in Ukraine. As we've previously said, there is no way that Putin is going to lose control of Ukraine's valuable resources, and allow Ukraine to become more closely allied with the European Union. Putin has lately been keeping quiet about Ukraine, and the country appears to be in a state of suspended animation, awaiting the December 26 runoff election. We'll be waiting to see what Putin will do if the election doesn't go his way. (19-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Explosive conflict seems imminent in Darfur, Sudan

Large quantities of arms and ammunition have poured into Darfur in the last two weeks and the Sudan government appears ready for a major military offensive, the African Union (AU) said on Friday, which added that the region was now a "time bomb that could explode at any moment."

Darfur - southwest region of Sudan <font size=-2>(Source: BBC)</font>
Darfur - southwest region of Sudan (Source: BBC)

Thiis AU report came out on Friday, just as Amnesty International blamed the AU and the United Nations for failing to stop the mass murder and rape of civilians by government-supported militias, which are also bulldozing and burning entire regions ("scorched earth policy") to prevent people from returning to their homes.

When I first discussed the Darfur issue six months ago, in a piece entitled, "Darfur genocide: The UN is completely irrelevant," I concluded, "One thing that Generational Dynamics tells us is that this kind of genocide is a force of nature, and that the UN can no more stop it than they can stop a typhoon."

If the AU report is correct, then we're just about the see the full fury of that typhoon.

A principal finding of Generational Dynamics is that there are two kinds of wars: Non-crisis wars are fraught with political dissent and often end inconclusively; the Vietnam War and World War I are two non-crisis wars for America in the 20th century.

Crisis wars are fought with little political dissension and with much ferocity, almost always ending in an explosion of genocidal fury. There have been two American crisis wars since the founding of the nation: World War II, which ended with the use of nuclear weapons on two cities of Japan, and the Civil War, which ended after General Sherman conducted a "scorched earth" march through Georgia, killing everyone possible and destroying all possible property.

This kind of war, once begun, cannot be stopped any more than an earthquake can be stopped, until it's run its course. If the African Union report is right, then we may be seeing the explosion of genocidal fury in the Darfur war very soon. (17-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

North Korea says Japanese sanctions will trigger "war" and an "effective physical" response

Japan has threatened to freeze food aid to North Korea and impose other sanctions after catching North Korea in a lie over a matter or Japanese national honor.

 Megumi Yokota pictured before her abduction in 1977 <font size=-2>(Source: BBC)</font>
Megumi Yokota pictured before her abduction in 1977 (Source: BBC)

Megumi Yokota was just 12 years old when the Koreans abducted her on a Japanese beach. She was one of a dozen or so 1970s Korean abductions of Japanese for the purpose of teaching spies Japanese language and culture.

In recent years, Japan has demanded return of the abductees, or their remains if they're dead, as claimed by North Korea.

Korea returned some ashes and bones to Japan in November, saying that they were Yokota's remains.

However, the Japanese public was infuriated when DNA tests revealed that the remains contained the bones of two persons, neither of them Yokota.

Japan said it will suspend food aid to North Korea and consider other possible economic sanctions.

North Korea responded yesterday by saying that any sanctions would be viewed as a declaration of war and would hit back with an "effective physical" response.

Now, this exchange has a deep reverberation in history, something that newspaper accounts are missing.

In 1931, Japan invaded Manchuria. and that triggered the worldwide oil embargo and economic sanctions against Japan, led by American and Britain and enforced by the League of Nations. In 1933, Japan walked out of the League of Nations and invaded China. One thing led to another, in Europe and Asia, and Japan finally bombed Pearl Harbor in 1941.

Americans have forgotten all this, of course, but you can be sure that the Koreans haven't. Imperial Japan colonized Korea during the first half of the 20th century, and later, during WW II, used tens of thousands of Korean women as "comfort women," for the Japanese armed forces.

If we follow the Generational Dynamics principle that no one ever remembers the atrocities they commit on other people, but no one every forgets the atrocities that others commit on them, then you can be certain that North Korean president Kim Jong-il, and the North Korean people themselves, are still infuriated by Japanese actions at that time. And after being victimized for "comfort women," you can be sure that the North Koreans really don't give a damn about Japanese anger over the abducted 12-year-old girl, Megumi Yokota.

And when Japan threatened last week to impose economic sanctions, Korea's response yesterday was essentially this: "We'll consider that an act of war, just as Japan considered economic sanctions against it an act of war in 1933."

The implied threat is that while Japan waited 8 years (1933 to 1941) to build up its military and launch the attack on Pearl Harbor, Korea is ready to launch an attack on Japan today, and won't wait 8 years. Indeed, North Korea is known to have developed missile technology that can easily reach Japan, and might even reach California, and North Korea is thought to have an arsenal of six to eight nuclear weapons that could deployed with those missiles.

Furthermore, North Korea, which is in a generational crisis period, has a million man army ready to flood across the demilitarized zone (DMZ) to overrun Seoul, South Korea. Generational Dynamics shows that this are exactly the kinds of things that happen in crisis periods, whether they are rational or not. During crisis periods throughout history, war becomes like sex, and the drive to commit genocidal war becomes an overwhelming drive related to the human "survival of the fittest" instinct.

Why didn't Japan's invasion of Manchuria in 1931 trigger an immediate larger war involving America? Well, one reason is that we had no major national interest in defending Manchuria and China in a regional war with Japan.

Things are quite different today. We're obligated by treaties to defend Japan, South Korea and Taiwan (as well as Israel). That means that a regional war in any of these areas will pull in America, and probably trigger a worldwide war. As I've recently described, these are among the six most dangerous regions of the world, in that a regional war in any one of them would almost certain spiral out of control into a world war. (16-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Fed raises interest rates and makes a 2005 recession almost certain

Signalling aggressive plans to fight the weakening dollar, the Fed on Wednesday raised the overnight funds rate a quarter percent, to 2.25%.

The Fed undoubtedly felt it had no choice, in view of the ever-widening trade deficit with other countries, which has caused a substantial fall in the value of the dollar overseas. If they had any doubt on Monday evening, I'm sure they lost that doubt on Tuesday morning when released figures showed an unexpectedly sharp increase of 9% in the October trade deficit, showing that the loss of value in the dollar may be accelerating.

According to Hans Redeker of BNP Paribas, speaking on CNN International this morning, this means an almost certain recession in 2005.

Redeker's remarks are not surprising, in view of the fact that analysts have been predicting for several months that there would be recessions in Europe and America in 2005 if oil prices stayed above $40 per barrel. Oil prices have been falling recently, after shooting up to $55 per barrel last month, but they're still above $40.

Still, the situation highlights the Fed's dilemma. If the Fed leaves interest rates unchanged, then the dollar's value will continue to fall.

If the Fed raises interest rates, which it is signaling that it will continue to do, then investors will pull money out of stocks.

Wall Street Historical Price/earnings ratio for S&P 500
Wall Street Historical Price/earnings ratio for S&P 500

The reason for this is related to the historically high price/earnings ratios of stocks today, running between 20 and 25.

When the price/earnings ratio is 25, it means that a company is earning $1.00 per year for each $25.00 in the price of its stock. This roughly means that an investor buying that stock can hope to earn only $1.00/$25.00 or 4% per year. At a P/E ratio of 20, the rate is $1.00/$20.00, or 5% per year.

Yesterday's increase in the overnight funds rate to 2.25% has had the immediate effect of causing banks to raise their prime interest rates from 5% to 5.25%. These are the rates that banks charge in loans to its most reliable borrowers.

So an investor with money has a choice of investing in stocks, and hoping to earn roughly 4% to 5% on the investment, or by lending at the prime rate, and earning 5.25%. As the Fed continues to increase interest rates to prevent further weakening of the dollar, stock investments become less worthwhile.

Total credit market debt <font size=-2>(Source: PIMCO)</font>
Total credit market debt (Source: PIMCO)

Increasing interest rates has another effect: The Fed lowered interest rates to near-zero in order to prevent massive bankruptcies and homelessness following the 2000 Nasdaq crash. Many people and businesses that would have gone bankrupt have, instead, borrowed large sums of money at near-zero interest rates, and are living off this credit. The result is the highest rate of public debt since the 1930s. As the Fed raises interest rates, the ability of individuals to continue borrowing to cover existing debt is reduced, and we can expect to see the level of bankruptcies increase.

From the point of view of Generational Dynamics, a 1930s-style depression is already in the cards, no matter what the Fed does. (15-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Netherlands will deport Muslims who can't pass an integration exam

The startling changes in Holland are continuing, as the Dutch government announced a plan to require 750,000 non-citizens to pass a citizenship exam, or risk a fine or deportation.

This is the latest in a number of rapid changes to Holland that have been occurring since the November 2 murder of filmmaker Theo van Gogh by a Muslim extremist. Since then, arson attacks have burned over a dozen mosques and Muslim schools, and Pim Fortuyn, the harshly anti-immigrant politician who was assassinated two years ago, was voted the "Greatest Dutchman of all time."

Although the planned law is framed as an educational measure, it's mainly targeted at Muslim immigrants who arrived from Turkey and Morocco in the 1960s and 1970s as "guest workers." These guest workers formed communities of their own and were educated in their own languages and their own culture. This was done on purpose, following the Dutch model of a multicultural society in which any group could express their own opinions and ideas, and practice their own religion.

The Dutch always avoided talking about these guest workers, and politicians turned a blind eye to serious problems, according to a BBC World Service analysis yesterday, and tacitly assumed that the guest workers would eventually return to their own countries. Of course, this has always been an unrealistic assumption, especially for second and third generation workers, even when they grew up in Holland without learning to speak Dutch!

Attitudes began to change after 9/11, and anti-immigration attitudes were galvanized by Fortuyn. The changes were put on hold after Foruyn's assassination by an animal rights activist, but were revived with great vigor after the recent Van Gogh assassination by a Muslim extremist.

The new planned law is intended to reverse Holland's multicultural approach, and adopt an approach that France has been trying for years - integration instead of multiculturalism. The purpose of the integration exam is force guest worker families to learn the Dutch language and culture, and become integrated within Dutch communities. Needless to say, that's just another form of denial; this has as much chance of succeeding as pigs have of flying.

From the point of view of Generational Dynamics, this is interesting because it's beginning to show what path Europe is taking. Generational Dynamics tells us what the final destination is, but doesn't tell us what path will be taken to reach the destination. In this case, it tells us that there will be a new West European war, just as there have been wars as regular as clockwork throughout the last millennium or more. But how is it going to unfold?

As we approach "clash of civilizations" world war, Europe itself is becoming increasingly divided along the fault line between Muslims on the one hand and Christians and Jews on the other. This division has become apparent in Germany with the success of Neo-Nazis and Communists in regional elections, and in France with the headscarf ban.

The rapidity with which the Netherlands is changing gives us a glimpse of how fault lines are being exposed, as we approach the next European war. (14-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Sunday's Gaza bombing a turning point for Palestine peace plan

Palestinian militia group Hamas claimed credit for major terrorist attack, that killed four Israeli soldiers. Hamas promised that the attacks will continue.

Prior to Yasser Arafat's death, the international belief was that only Arafat was standing in the way of a peace agreement, and that once he was gone, a moderate Palestinian leader could bring peace.

The complaint about Arafat is that he refused to bring Palestinian terrorists to justice. That's why today's terrorist act is such a major turning point.

Mahmoud Abbas, also known as Abu Mazen, was Arafat's aide, and is now the de facto Palestinian leader. He's expected to win the election for Palestinian president on January 9.

So what's Abbas going to do now? Will he crack down on the Hamas leaders who perpetrated today's bombing, and are claiming credit for it? If he doesn't, then he'll reveal himself as no different from Arafat. If he does, he'll infuriate Hamas, and a lot of other Palestinians as well.

There's also a great deal of Palestinian politics going on. Abbas is head of Fatah, the militia group that Arafat founded. Hamas, which perpetrated today's attack, is essentially a competitor to Fatah. Today's attack reveals that Hamas is willing to use violence as a weapon against Fatah as well as Israel, since Fatah will be shown impotent when it fails to bring Hamas under control.

Incidentally, Sunday's attack is a major embarassment to Israel's IDF (security forces). The bombing came from 1500 kg (3300 pounds) of explosives inside a tunnel 600 meters (0.37 miles) that the Hamas operatives have been digging for four months. This represents a massive intelligence failure for the IDF, whose leaders will be subject to the same type of political criticism as America's CIA leaders are.

Ironically, Abbas received a gift on Sunday, when Marwan Barghouti withdrew from the election race, virtually guaranteeing that Abbas will win on January 9.

Journalists are speculating that Barghouti, who is also a member of Fatah, made the move out of kindness to Abbas, so as not to split the Fatah movement. That sounds like wishful thinking to me.

Abbas is a member of Palestine's "old guard" generation, who grew up during the 1940s genocidal war between Jews and Arabs, and willing to compromise to prevent a similar war. Barghouti is a member of the "new guard" younger generation, born after that war, with no personal memory of it, and no fear of repeating it.

Mideast, showing Israel/Palestine, Muslim countries, and Orthodox Christian countries
Mideast, showing Israel/Palestine, Muslim countries, and Orthodox Christian countries

There has been a clear generational split among Palestinians for a long time, with Arafat's "old guard" becoming increasingly less popular. A more likely explanation is that the 49 year old Barghouti didn't want to run for President because he was likely to win, and then he'd have to face problems like Sunday's Hamas blast; better to wait until Abbas fails and then take over.

Many Palestinians in Barghouti's generation and younger generations feel like radical Muslims in other countries, who deeply resent having Israel in their midst, and will not rest until the small red dot hear the middle of the adjoining map is wiped out.

Whatever the reason for Barghouti's withdrawl, we've been predicting for a long time that no Mideast peace plan will succeed, and that the Palestinians and Israelis will re-fight the genocidal 1940s war, with almost mathematical certainty. (13-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Taiwan dodges a bullet for now by repudiating President Chen

Rather than further antagonize Beijing and risk an early war, the people of Taiwan gave President Chen Shui-bian an unexpected defeat in a Saturday election by voting to give the opposing party a majority in the legislature.

President Chen had been moving in the direction of independence of Taiwan from China. Chen has announced he will amend the Constitution by 2008 to move towards independence, and China has announced that such a move would amount to a declaration of war. Several weeks ago, on Taiwan's National Day, Chen roiled the waters still further with the "the Republic of China is Taiwan, and Taiwan is the Republic of China," hinting at a plan to change the name of the island officially to Taiwan, which would be a further move toward independence.

That statement prompted a poll that found that indicate that 71% of Taiwanese citizens already consider Taiwan to be "sovereign and independent," leading many to believe that Chen would win the Parliamentary election.

However, both Beijing and Washington have been rebuking Chen's moves toward independence, and Saturday's election indicated that the people were going to be more cautious.

From the point of view of Generational Dynamics, China and Taiwan are in a late "generational unraveling" period turning into a "generational crisis" period. During an unraveling period, a society is risk-averse, and seeks compromise and containment of problems. In a crisis period, a society becomes risk-seeking, and is much more willing to use confrontation in its policies. So it's not surprising that during the transition period from unraveling to crisis, there is flipping back and forth between risk-aversion and risk-seeking. That's why the Taiwanese can say that Taiwan is already "sovereign and independent" one day, and then repudiate plans to become more sovereign and independent a few weeks later.

In fact, the phrase "unraveling period" comes from the observation that during the period leading up to a new crisis war, all the old painful rules and compromises that ended the previous crisis war become increasingly unraveled as time goes on.

Washington and Beijing are both breathing a sigh of relief over these election results, since Chen's plans are clearly going to be slowed down.

But they'll be delayed, not stopped. China's last crisis war was the civil war between armies led by Mao Zedong and Chiang Kai-shek that ended in 1949. The war concluded with Chiang's flight to Taiwan. People with a personal memory of that war would be 60 years old or older today. These risk-averse people will slow down the move toward independence, rather than risk another war with China. However, these people are increasingly disappearing (retiring or dying), all at once, and they're being replaced by the risk-seeking younger generation of people born after the war and with no personal memory of it.

Generational Dynamics predicts that China will refight the civil war of the 1940s. There are three possible triggers for this renewed civil war:

Any one of these triggers could occur at any time -- next week, next month, or two or three years from now.

Generational Dynamics predicts that all three of these will occur in the next decade or so. (12-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Who poisoned Ukraine opposition leader Viktor Yushchenko?

That's what people are asking today, after doctors confirmed that he was poisoned with dioxin.

Viktor Yushchenko - August 2004 versus October 2004 <font size=-2>(Source: AFP)</font>
Viktor Yushchenko - August 2004 versus October 2004 (Source: AFP)

Suspicions have been brewing for months, thanks to the dramatic change in the 50-year-old politician's appearance since September, which turned him from a young-looking stud into a pock-marked old man. He has frequently complained that he was poisoned, and today, doctors confirmed his suspicion.

So, who poisoned Yushchenko? If it were America, my first suspicion would be an old lover, since no one would be so stupid as to poison a political enemy.

But this is Ukraine, not America. In this case Yushchenko's major political enemy is Russian President Vladimir Putin, formerly of the KGB, and there's little doubt that the KGB is quite capable of poisoning someone to gain a political objective.

Yushchenko was the loser of a November 21 Presidential election which is now almost universally recognized worldwide as a fraudulent election. A variety of fraudulent election-rigging techniques were used, including media manipulation, padding ballot boxes with millions of invalid ballots, threats of physical violence, and rigged ballot counting after the election.

Facing public demonstrations by hundreds of thousands of Yushchenko supporters, the Supreme Court called for a rerun election on December 26. Polls currently give Yushchenko a 10 point lead, and the finding confirming that he was poisoned will presumably increase that lead.

The finding will reopen a criminal investigation in Ukraine to determine responsibility for the poisoning. An angry Yushchenko himself has promised that, when elected, he will investigate all the people involved in the mass fraud of the last election, including the poisoning. Supporters of Yushchenko's opponent, Viktor Yanukovych, have denied having anything to do with the poisoning.

East/West Ukraine split in Presidential vote. <font size=-2>(Source: AFP)</font>
East/West Ukraine split in Presidential vote. (Source: AFP)

Ukraine has been sharply split along geographical lines by the November 21 election: Russian-speakingEastern provinces support the current government and closer relations with Moscow and victory by Viktor Yanukovych. Ukrainian-speaking Western provinces support the "Orange Revolution" led by Viktor Yushchenko, and closer relations with Europe.

Vladimir Putin
Vladimir Putin

For the many reasons that we've previously described, the steely Russian President Vladimir Putin will not tolerate an entirely independent Ukraine, since Russia needs the resource-rich nation. Putin showed great skill in nationalizing the oil giant Yukos during the last year, and confiscating all its assets for his own purposes, and he'll be looking for ways to do the same in Ukraine. Any such moves will receive the support of the people of East Ukraine, but will be bitterly opposed by West Ukrainians, not to mention governments in Washington and Europe.

Incidentally, most of the people of Ukraine and Russia are undoubtedly aware that today is the tenth anniversary of the day, 11-Dec-1994, when Russia sent troops into Chechnya, marking the official beginning of the Chechen war that is going on until this day. If Yushchenko wins on December 26, as polls currently indicate, then the world will be watching for threats of a similar action.

Today, Ukraine appears to be in a state of suspended animation. The massive demonstrations have been reduced small groups, and everyone is "playing nice," under the watchful eyes of the international community. Undoubtedly, this is also influenced by preparations for Christmas, which will be celebrated on January 6. The question is: Is there any outcome of the December 26 election that will be acceptable to everyone -- East Ukraine, West Ukraine, and Vladimir Putin? (11-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Tough talk, little action on Darfur

A spate of news stories are decrying fact that nobody's doing anything about the Darfur genocide.

A story on begins by mocking the United Nations:

An article on points out that things have been getting much worse in the last few months:

When I first discussed the Darfur issue six months ago, in a piece entitled, "Darfur genocide: The UN is completely irrelevant," I concluded, "One thing that Generational Dynamics tells us is that this kind of genocide is a force of nature, and that the UN can no more stop it than they can stop a typhoon."

This is in contrast to my repeated predictions that Iraq would NOT spiral into a major uprising or major civil war. The difference, as I've explained many, many times, is that Darfur is in a generational crisis period, and Iraq is in a generational awakening period. That's why I could make both predictions with such assurance, and why both predictions came true.

I was musing about this fact yesterday, when I was speaking with a couple of co-workers on my "real job" as an IT consultant, where both of them were telling me that I don't know what I'm talking about. I don't know what it takes to prove to people that I have a track record. I've been posting very specific predictions on this web site for almost two years. Many of them have come true. Some of them are still "pending," and we'll have to see if they come true. (They will.) And none of them have turned out to be wrong.

I'm sorry, dear reader, but I feel like whining today. My record in forecasting the future on this web site has been nothing short of sensational -- much more successful than I would have believed possible three years ago, before I started researching and developing the Generational Dynamics methodology, and discovered to my own amazement that it actually works. And yet I can't get any support or traction for Generational Dynamics or this web site, though I do greatly appreciate the several hundred of you who read this web site on a daily or regular basis. Well, I guess it must be the fault of my sunny personality.

I do have some news. I've almost completed a first draft of my next book, tentatively titled, Generational Dynamics for Historians. Within the next few weeks I'll be making the text of the new book available online. (Actually, it's already online at a secret URL, hee hee.)

The new book explains the historical analysis and forecasting methodologies in detail, and shows how they're applied to dozens of societies, regions and nations throughout thousands of years of history. It will describe the previous work on generations on which Generational Dynamics is based, and show how the theory has changed, expanded and advanced. It will even address other methods that historians have used to attempt to find patterns in history, and why these methods, like Kondratiev Cycles, have all failed, and how Generational Dynamics fully explains and subsumes them in a very elegant way.

So if you're interested in history, then watch for that, coming soon to a computer screen in your neighboohood. (10-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

United Nations report says skyrocketing hunger problem is solvable with money

Unfortunately, the UN's Food and Agricultural Organization (FAO) is wrong.

According to FAO's Annual Hunger Report for 2004:

The increase from 18 million to 852 million in just 5 to 7 years indicates that hunger and poverty are skyrocketing, and may be approaching some sort of tipping point.

Another UN web site shows the countries where hunger and malnutrition are the greatest:

Hot Spots in Worldwide Hunger <font size=-2>(Source: UN)</font>
Hot Spots in Worldwide Hunger (Source: UN)

On the World Food Programme web site, it's an interactive map that lets you zoom in on any country of interest. It shows where hunger is the greatest.

According to the UN World Food Programme, "There is enough food in the world to feed everyone. Yet malnutrition and hunger still afflict one out of every seven people on earth," and the following are the reasons:

Unfortunately, the UN analysis isn't true. Yes, technically there may be enough food in the world to feed everyone, but as a practical matter there isn't, since a surplus of wheat in France would not be much help for the poor people of Mongolia, where 40% of the population are undernourished.

As we discussed in our analysis of the "Green Revolution vs Malthus Effect," the population of the world is growing faster, possibly much faster, than the amount of food. We've estimated that the food supply grows at the rate of 0.96% per year, while worldwide population growth exceeds 1.25% per year, and is 2-4% in some countries -- usually the poorest countries.

[Correction: UN figures show that population growth has been 1.72% since 1950, not 1.25%.]

This is an iron fact of the human condition. It's been true throughout history, and it will continue to be so for as long as humans are on the earth: Women will continue to have children faster than available food, and women in the poorest countries will have more children than women in wealthier countries.

We've made the following estimate: We start by assuming that in 1950, after all the deaths in WW II, the population of the earth is "just right" for the amount of food available per capita. Since the food supply grows at 0.96% per year, we can compute what the population should be today.

According to the UN, the world population in 1950 was 2.5 billion. Multiplying this by (1.0096^55), we get 4.2 billion, which should be the population of the earth in 2005, 55 years later. But in fact, the world population in 2005 is 6.5 billion.

That means that we have roughly 2/3 as much food per person today as we did in 1950. And it gets worse every hour, every day, every week, every month, every year. As I said, this is an iron fact of the human condition, and we call it the "Malthus Effect," because it was first described by Thomas Roberts Malthus in 1798.

If a man can't feed his family, then he has every reason to go to war. In fact, in many societies the best way to get fed is to be in the army, and often you can send your salary back to your family so they can eat.

Even worse, if a man can't feed his family, then he'll blame someone wealthier, and hate that person. If that person is an American or an Israeli, then he'll be motivated to go to war against America or Israel.

For those who don't believe the conclusions of this web site, then you should understand that the figures are given are just about as close to a mathematical proof as you can get that we're headed for a world war. It's been that way throughout history. In this case, the 6.5 billion people on earth will be reduced to 3 or 4 billion. Once the war is over, there'll be prosperity everywhere, since there'll be plenty of food again, just like there was in 1950. Then the cycle will begin again. (9-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Iran: Tehran University student unrest is building against the government

"Moderate" President Mohammad Khatami blamed the hard-line Muslim clerics for his failure to keep his promises to implement democratic reforms when he was elected in 1997 and re-elected in 2001.

Instead, his term of office, which ends in 2005, has been marked with harsh intolerance. Newspapers have been closed, dissident students have been jailed, and electoral reforms have been blocked.

From the point of view of Generational Dynamics, what's interesting about all this is that Iran is in a generational awakening period, just like Iraq (see next item below). So we're seeing exactly the same kind of political turmoil in Iran that we see in Iraq, and that we saw in America in the 1960s.

This is always a generational conflict, pitting the younger generation of college against their parents, the survivors of the last crisis war (in this case, the Iran/Iraq war). The hard-line imams seem unreasonable to us, but from their point of view, their hard-line actions have no purpose other than to prevent another destructive, genocidal war like the Iran/Iraq war.

Political conflict in awakening periods often leads to a politically explosive climax which decides which side is the winner. In the American awakening, the kids "won" when Richard Nixon resigned. In China awakening period of the 1980s, the older generation "won" with the Tiananmen Square massacre in 1989.

The political crisis, however it ends, does not substantially change the country's direction. This is a relevant issue, because I've heard a number of pundits suggest that we fund the students to overthrow the imams and install a pro-American government. Not going to happen. There will be a political climax at one point, but at this point we can only guess how it will turn out. (8-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Iraq: As the January 30 election date approaches, pundits are talking about civil war again

Journalists and analysts are pumping up their warnings of civil war, as well-funded insurgents step up their car-bombings and other terror attacks.

For example, according to one analysis in the International Herald Tribune, the civil war has already begun. We're being told that it's because the Sunnis are rising up against the Shi'ites. We're also being told that it's like the violent Lebanese civil war that begin in the late 1970s.

It was just a few months ago that these same journalists were telling us that a civil war was breaking out because the Shi'ites were rising up, in sympathy with Shi'ite cleric Moqtada al-Sadr.

What? You've forgotten that civil war? You have a short memory, don't you? Well, it's not surprising - Moqtada al-Sadr hasn't been in the news for several months now.

As we explained at the time, as we mocked the journalists and high-priced analysts who were making these pronouncements, a civil war is IMPOSSIBLE at this time in Iraq, because only a single generation has passed since the violent crisis war, the Iran/Iraq war of the 1980s. We've studied over 100 wars throughout all places and times throughout history, and there's NEVER been a new crisis war less than two generations after the end of the last crisis war. So a crisis war in Iraq today is impossible.

But what about that Lebanese civil war? Well, that was indeed a crisis civil war, but Lebanon's previous crisis war was in the 1920s, with the breakup of the Ottoman Empire. That's the same timeline as the Iran/Iraq war of the 1980s, and the Turkey-Kurd war that ran from 1984 to 2000. Those crisis wars all ran pretty much right on schedule, on the World War I timeline. A crisis war in Iraq today is impossible.

That's not to say that things are going to be easy in Iraq. Far from it. Abu Musab al-Zarqawi's well-funded terrorist program, designed to derail the January 30 election and destability the entire region, is going to kill a lot more people, most Iraqis, before it's over.

As we've described in detail, Iraq is currently at the beginning of a generational awakening period. Awakening periods are characterized by enormous political turmoil, and we should expect a lot of conflict between Sunnis, Shi'ites and Kurds next year. Hopes for an American withdrawal in 2005 won't happen, but there won't be any civil war. (7-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

A Wall Street Journal article with an ironic twist warns that stocks are overpriced in India.

India's stock prices have increased 29% during the past six months.

India's BSE 30 stock market index, Jan-December 2004 <font size=-2>(Source: WSJ)</font>
India's BSE 30 stock market index, Jan-December 2004 (Source: WSJ)

According to the article on p. C16 of Friday's (12/3) WSJ by Eric Bellman, "The robust Indian stock market may be due for a breather, as investors wait for earnings to catch up with soaring share prices."

There's a very ironic twist to this article, because it gives as an explanation the fact that price/earnings ratio are getting too high.

How high have they gone? To an average of 15!!

According to the article, analysts are warning that the recent rally in India's stock market "might have taken prices higher than their potential earnings warrant." It says, "The 29% increase in the benchmark index during the past six months has pushed up the average price/earnings ratio for companies that make up the Sensex to more than 15, based on projected earnings for the year ending March 31 -- well above the average of 11 for the previous three-year period. The average P/E ratio based on earnings projections for fiscal 2006 is about 13, analysts say."

Wall Street Historical Price/earnings ratio for S&P 500
Wall Street Historical Price/earnings ratio for S&P 500

So the Indian stock market is in danger because P/E ratios have reached 15, but journalists, pundits and high-priced analysts are blithely sanguine about American P/E ratios in the 20s, as the adjacent graph shows.

Regular readers of this web site know how cynical I am about journalists, politicians and analysts, most of whom say any dumb thing that pops into their heads, but this whole issue of P/E ratios really takes the cake.

Go back and and reread that paragraph above where I quoted the WSJ article, where it says that the value 15 is "based on projected earnings for the year ending March 31." This computation is almost a complete hoax. Let me explain.

How do you compute P/E ratios? You take the price of the stock and divide by the earnings of the company per share of stock. So if the stock sells for $100 per share, and the company earned $5 per share, then the P/E ratio is $100/$5, or 20.

It's easy to determine the price of the stock, but what value do you use for earnings? It turns out that there are several ways of doing this, and they're all equally good, provided that you don't switch methods in midstream.

Since I'm interested in analyzing long-term trends, I use Yale Professor Robert J. Shiller's figures on his web site at, where he's collected annual stock market data since 1871, and very generously makes them available to the public.

Shiller computes the P/E ratios using today's stock prices and dividing by the average earnings per share value over the preceding ten years. This is the most solid method method, in my opinion, and is the best to use when you're doing long-term analyses and forecasting future values.

However, almost as good a method is using the previous one year's earnings in the P/E computation. This gives a slightly different value for the P/E index, but as long as you use that value consistently, then you get valid results. In fact, the P/E ratio chart that appears at the bottom of this web site's home page is based on the previous year's earnings.

But that's not what the article above did:

This is incredibly flaky, sloppy analysis. You cannot compare P/E ratios when you compute them in completely different ways, but that's exactly what's happening in that article.

Beware the same thing happening when pundits and analysts talk about P/E ratios for Wall Street stocks. If you hear them say, as I have heard on occasion, that current P/E ratios are around 15 or 16, then they're pulling this methodological hoax. They're using current stock prices and dividing by whatever they want to claim are next year's projected earnings.

You can use any method you want to compute earnings -- 10 year average, one year, or next year's projected earnings -- but if you want to compare today's P/E ratios to historical values, then you MUST use the same method to compute earnings in all cases you're comparing.

From the point of view of Generational Dynamics, America has entered a 1930s style Great Depression era, with stocks overpriced by 100% or more, and poised to fall by 50% within the next few years. (6-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Ukraine Supreme Court rules that election must be rerun on Dec 26.

In a huge victory for opposition leader Yushchenko, and a defeat for Putin and the Ukraine government, the Ukraine Supreme Court has found that the last election was so flawed through rigging, vote abuse, government interference, government-run media bias, that the election has to be rerun.

The ruling was greeted by massive shouts and cheers by the thousands of Viktor Yushchenko supporters who had been camping out around the Supreme Court and other government buildings in Kiev.

The court ruling was a crushing defeat for the government and for the Russian-supported candidate, Victor Yanukovych. They had hoped for a more moderated decision, but in fact the decision indicated a huge litany of election abuses.

The Supreme Court rejected a government-supported proposal for an entirely new election. This would have resulted in a new vote, but under legal terms that would prevent either Yanukovych or Yushchenko from running. If two entirely new candidates were to run in a new election, then the possibility of Russian influence might turn things back in their direction.

As things stand, the opposition candidate Viktor Yushchenko is heavily favored to win the re-run election.

This hardly settles the matter, however. As we've previously written, Russian President Vladimir Putin will not tolerate an entirely independent Ukraine, something that Yushchenko would certainly seek. Indeed, Yushchenko would pursue policies to link the country closer to Europe than to Russia, and would be expected to consider adopting policies that might bring Ukraine to join the European Union. This is not something that Putin is going to tolerate.

East/West Ukraine split in Presidential vote. <font size=-2>(Source: BBC)</font>
East/West Ukraine split in Presidential vote. (Source: BBC)

This Supreme Court decision will cause a great deal of discord within Ukraine itself. East Ukraine, which voted for Yanukovych and still supports him, is threatening to secede from Ukraine, splitting the country in two. We can expect this threat to gain further momentum. (3-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

November jobs report much softer than expected

In a story we've heard repeatedly for three years, companies are not hiring at anywhere near the rate predicted by politicians, journalists and high-priced analysts.

The U.S. economy created 112,000 new jobs in November, according to the Bureau of Labor Statistics. Analysts had forecast an increase of 180,000 to 200,000 new jobs.

By now, according to analysts in 2003, the economy should be creating some 300,000 new jobs per month or more. As late as this past February, just ten months ago, the White House projected that the economy would create 2.6 million jobs in 2004. They made this estimate by assuming that the recent recession is just like other recent recessions, such as the 1991 recession, or other recessions since 1945.

What Generational Dynamics says is that today's economy is like the 1930s-40s depression economy. The reason is that, within the last ten years, the generation of people who lived through the great depression have all disappeared (retired or died), all at the same time, and so our society has been making the same mistakes that gave rise to the 1930s depression, especially the massive 1990s stock market bubble, which still hasn't fully played out. We haven't suffered the massive bankruptcies and homelessness of the 1930s because Alan Greenspan's Fed has kept interest rates close to zero for the last three years, allowing people and businesses that would otherwise have gone bankrupt to borrow huge amounts of money at low interest to stay afloat. However, lowering interest rates hasn't eliminated the danger, but only postponed it. That's why we've been saying, since 2002, that we're entering a new 1930s style Great Depression.

Historical Price/earnings ratio for S&P 500
Historical Price/earnings ratio for S&P 500

The fact that stocks are due for a big fall has been evident for years to anyone looking at the extremely high price/earnings ratios, well into the 20s. If history is any guide, and it is, then the price/earnings ratios are going to fall below 10, which means that the Dow Jones average will fall to the 4000 range and the S&P 500 index will fall to the 400 range.

Alan Greenspan and the Fed have an immediate problem to deal with: Will they increase interest rates again and risk hurting the employment situation still further? Or will they leave interest rates steady, and risk letting the already plummeting dollar to fall still further on international markets? We'll all be breathlessly waiting to see which it will be. (3-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Marwan Barghouti shocks Palestinians and the West by running for President

What if the jailed Palestinian terrorist wins the election on January 9?

Marwan Barghouti was a leader of the Palestinian uprising that began in September 2000. The Israelis arrested him in April 2002 and charged with the killing of 26 people and belonging to a terrorist organisation. If he wins the election, he'll have to govern from jail.

Western politicians, pundits and high-priced analysts, including the Israelis, Americans and Europeans, have been saying for years that the only reason that the Israelis and Palestinians could have peace is because of Yasser Arafat, and that peace would break out once he was gone. The reason they believed this is because they believed that Arafat's policies came from Arafat rather than from the people he was representing. In other words, even though Arafat has been a survivor and has led the politicians for decades, these Westerners assumed that the Palestinians were so dumb that they let him lead him in a direction they didn't want to go.

The Presidential candidate most favored by the West (though not be many Palestinians) is Mahmoud Abbas, 69, part of the same "old guard" generation that Arafat was in. But Arafat had the people's respect as being Father of the Palestinians. Abbas has no such respect.

as I wrote when Arafat died, Arafat lived through the vicious genocidal wars between Jews and Palestinians in the 1940s, and considers an occasional terrorist act to be a small price to pay to avoid having any war like that again. Abbas is in the same generation.

But 49 year old Barghouti is in the "young guard" generation that has no memory of that war, and has no fear of brinksmanship that might lead to a similar war.

Mideast, showing Israel/Palestine, Muslim countries, and Orthodox Christian countries
Mideast, showing Israel/Palestine, Muslim countries, and Orthodox Christian countries

Many Palestinians in Barghouti's generation and younger generations feel exactly the same way. Like radical Muslims in other countries, younger generation Palestinians deeply resent having Israel in their midst, and will not rest until the small red dot hear the middle of the adjoining map is wiped out.

Politicians in Israel, Europe and Washington breathed a sigh of relief last week, when Barghouti announced that he would not run for President against Abbas.

And that's why those same politicians, and even the Palestinian politicians, are suddenly so alarmed, now that Barghouti has evidently changed his mind. They've had this dream of instant peace when Arafat was gone, and suddenly they realize that their dream might well be a fantasy. Guess what? Arafat was just doing what the Palestinian people wanted him to do.

There's a possibility that Barghouti's candidacy is still a ploy of some kind to gain leverage against the Palestinian Authority. But in the end, Barghouti isn't the point. The point is that the "young guard" generation of Palestinian leaders are impatient that their hated Israeli enemy still lives in their midst, and are will to cross lines that Arafat would not crossed.

As I've been saying since 2002, Generational Dynamics predicts that there's going to be a major regional Mideast war between Arabs and Jews in the next few years with near 100% probability. The war will engulf the entire region, and draw in America. The Jews and Palestinians will try again, as they did in the 1940s, to exterminate each other, and the continued existence of Israel is not guaranteed. (2-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Ukraine drifts further from Moscow as Parliament rejects Yanukovych

Everything depends on Putin's reaction now, as momentum appears to be gathering for a political victory by opposition candidate Viktor Yushchenko,

Ukrainian opposition leader Viktor Yushchenko (left) sings the national song during a rally held in Kiev. <font size=-2>(Source:Xinhua/AFP Photo)</font>
Ukrainian opposition leader Viktor Yushchenko (left) sings the national song during a rally held in Kiev. (Source:Xinhua/AFP Photo)

With large crowds in Kiev continuing to support Yushchenko, the Ukraine Parliament has passed a no-confidence vote in the Russian-supported Yanukovych government, in a close vote supported by 229 of the 450 members of Parliament.

There are still numerous legal options to be played out: the Supreme Court has yet to rule; there are calls for an immediate rerun of the election, which the rebel Yushchenko would almost certainly win; there are calls for a brand new election in three months, which would give Yushchenko's supporters a chance to cool down.

Yushchenko and his supporters will oppose a brand new election or any other form of delay, and will continue to insist that he immediately be declared the winner of the recent allegedly fraudulent Presidential election or, at worst, an immediate rerun of that election.

Supporters of Ukrainian Prime Minister Viktor Yanukovich at a rally. <font size=-2>(Source:Xinhua)</font>
Supporters of Ukrainian Prime Minister Viktor Yanukovich at a rally. (Source:Xinhua)

Prime Minister Viktor Yanukovych, who was declared the narrow winner of the Presidential election, appears to be playing the part of a pawn of Russian President Vladimir Putin. As we wrote last weekend, Putin's history suggests that he will "do whatever is necessary" to make sure that Ukraine does not slip from his grasp, and that would almost certainly happen if Yushchenko is declared the winner.

So far, there's no sign of violence in Ukraine. Even on the streets, the supporters on both sides have been cordial with each other.

But more and more, this is looking like a confrontation between Yushchenko and Putin. We will have to see if either of them backs down, or what will happen if neither does. (1-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

U.S. and Japanese economies show unexpected warning signs

With the jobs report due out on Friday, America's consumer confidence index fell for the fourth month in a row, according to a report from The Conference Board.

Consumer Confidence Index, March-November, 2004.  <font size=-2>(Source: Conference Board)</font>
Consumer Confidence Index, March-November, 2004. (Source: Conference Board)

The Consumer Confidence index is computed from several different components that measure the economy in several different ways. For November, the most ominous components were expectations of future job growth, which were the lowest in more than a year, and measures of future buying plans, which also fell dramatically. These measures indicate that employment and retail sales are likely to be weak in coming months.

The fall was unexpected, as analysts had expected it to increase

Analysts had also been forecasting improvements in Japan's economy, but Japan's industrial production, employment and household spending all fell in October, an unexpected result.

As usual, you can't determine long term trends from one month's figures, but analysts have been predicting for over two years that both the Japanese and US economies would be growing robustly by now, since the recession ended in 2001. At least, that's what's happened "historically," with recessions in the 1960s through 1990s.

And Japan's econony has been in the doldrums since Nikkei (Tokyo Stock Exchange) index fell 80% in 1990.

No analyst has provided any explanation for why three major world economies -- America, Japan and Europe -- are all foundering, and can't seem to break out as they always have "historically."

<b>S&P 500 Index, 1950-present, with long-term trend line</b>
S&P 500 Index, 1950-present, with long-term trend line

This is the only web site that gives the complete reason. As we've said before,

Generational Dynamics predicts that we're in a new 1930s style depression. My expectation is that stock prices will fall by more than 50% in the next 3-4 years. To people who disagree with the analysis that I've been giving on this web site since 2002, my question is this: What's your explanation for why the economy has been doing so poorly?

The November jobs report is due out on Friday. It will be closely watched. (1-Dec-04) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Web Log Pages

Current Web Log

Web Log Summary - 2016
Web Log Summary - 2015
Web Log Summary - 2014
Web Log Summary - 2013
Web Log Summary - 2012
Web Log Summary - 2011
Web Log Summary - 2010
Web Log Summary - 2009
Web Log Summary - 2008
Web Log Summary - 2007
Web Log Summary - 2006
Web Log Summary - 2005
Web Log Summary - 2004

Web Log - December, 2016
Web Log - November, 2016
Web Log - October, 2016
Web Log - September, 2016
Web Log - August, 2016
Web Log - July, 2016
Web Log - June, 2016
Web Log - May, 2016
Web Log - April, 2016
Web Log - March, 2016
Web Log - February, 2016
Web Log - January, 2016
Web Log - December, 2015
Web Log - November, 2015
Web Log - October, 2015
Web Log - September, 2015
Web Log - August, 2015
Web Log - July, 2015
Web Log - June, 2015
Web Log - May, 2015
Web Log - April, 2015
Web Log - March, 2015
Web Log - February, 2015
Web Log - January, 2015
Web Log - December, 2014
Web Log - November, 2014
Web Log - October, 2014
Web Log - September, 2014
Web Log - August, 2014
Web Log - July, 2014
Web Log - June, 2014
Web Log - May, 2014
Web Log - April, 2014
Web Log - March, 2014
Web Log - February, 2014
Web Log - January, 2014
Web Log - December, 2013
Web Log - November, 2013
Web Log - October, 2013
Web Log - September, 2013
Web Log - August, 2013
Web Log - July, 2013
Web Log - June, 2013
Web Log - May, 2013
Web Log - April, 2013
Web Log - March, 2013
Web Log - February, 2013
Web Log - January, 2013
Web Log - December, 2012
Web Log - November, 2012
Web Log - October, 2012
Web Log - September, 2012
Web Log - August, 2012
Web Log - July, 2012
Web Log - June, 2012
Web Log - May, 2012
Web Log - April, 2012
Web Log - March, 2012
Web Log - February, 2012
Web Log - January, 2012
Web Log - December, 2011
Web Log - November, 2011
Web Log - October, 2011
Web Log - September, 2011
Web Log - August, 2011
Web Log - July, 2011
Web Log - June, 2011
Web Log - May, 2011
Web Log - April, 2011
Web Log - March, 2011
Web Log - February, 2011
Web Log - January, 2011
Web Log - December, 2010
Web Log - November, 2010
Web Log - October, 2010
Web Log - September, 2010
Web Log - August, 2010
Web Log - July, 2010
Web Log - June, 2010
Web Log - May, 2010
Web Log - April, 2010
Web Log - March, 2010
Web Log - February, 2010
Web Log - January, 2010
Web Log - December, 2009
Web Log - November, 2009
Web Log - October, 2009
Web Log - September, 2009
Web Log - August, 2009
Web Log - July, 2009
Web Log - June, 2009
Web Log - May, 2009
Web Log - April, 2009
Web Log - March, 2009
Web Log - February, 2009
Web Log - January, 2009
Web Log - December, 2008
Web Log - November, 2008
Web Log - October, 2008
Web Log - September, 2008
Web Log - August, 2008
Web Log - July, 2008
Web Log - June, 2008
Web Log - May, 2008
Web Log - April, 2008
Web Log - March, 2008
Web Log - February, 2008
Web Log - January, 2008
Web Log - December, 2007
Web Log - November, 2007
Web Log - October, 2007
Web Log - September, 2007
Web Log - August, 2007
Web Log - July, 2007
Web Log - June, 2007
Web Log - May, 2007
Web Log - April, 2007
Web Log - March, 2007
Web Log - February, 2007
Web Log - January, 2007
Web Log - December, 2006
Web Log - November, 2006
Web Log - October, 2006
Web Log - September, 2006
Web Log - August, 2006
Web Log - July, 2006
Web Log - June, 2006
Web Log - May, 2006
Web Log - April, 2006
Web Log - March, 2006
Web Log - February, 2006
Web Log - January, 2006
Web Log - December, 2005
Web Log - November, 2005
Web Log - October, 2005
Web Log - September, 2005
Web Log - August, 2005
Web Log - July, 2005
Web Log - June, 2005
Web Log - May, 2005
Web Log - April, 2005
Web Log - March, 2005
Web Log - February, 2005
Web Log - January, 2005
Web Log - December, 2004
Web Log - November, 2004
Web Log - October, 2004
Web Log - September, 2004
Web Log - August, 2004
Web Log - July, 2004
Web Log - June, 2004

Copyright © 2002-2016 by John J. Xenakis.