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


Web Log - August, 2005


Iran will set up a "love fund"

Iran's new president, Mahmoud Ahmadinejad, plans a billion dollar fund to help young couples from poor families get married.

President Mahmoud Ahmadinejad of Iran<font size=-2>(Source: )</font>
President Mahmoud Ahmadinejad of Iran(Source: )

It's called the "Love Fund," and it's the first piece of legislation sponsored by the charismatic new president of Iran.

The money will come from oil revenues. It will require passage by the parliament, but that should be easy because the newly elected Ahmadinejad is in a "honeymoon" period. (31-Aug-05) Permanent Link
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Lech Walesa claims credit for European Union and unification of Germany

Saying that he had been "well prepared and decisive" 25 years ago, Lech Walesa told a BBC interviewer that, without him and his actions, the "European Union couldn't have expanded, the unification of Germany would not have been possible. And other countries wouldn't have got their freedom if the Poles had not broken the Soviet bear's teeth."

Lech Walesa was an electrician and union organizer in Poland who became an anti-communist organizer in the 1970s, when Poland was still under Soviet control. In August 1980 he led the Gdansk shipyard strike which, much to his surprise, gave rise to a wave of strikes over much of the country. Walesa called for a national strike, which he led, and forced the government to stand down.

Walesa won the Nobel Peace Prize in 1983, and became the President of Poland from 1990 to 1995. He's viewed around the world as a hero, and many people do believe that it was his actions what led to the fall of the Berlin Wall, and then to the collapse of the Soviet empire.

However, it's a stretch to say that Walesa caused all these things to happen. Walesa is a good example of what I refer to as an "agent of change." When a change is due to come because of generational or technological trends, then very often there's an individual that triggers the change.

For example, if Thomas Edison had never been born, then the light bulb would have been invented by someone else at almost exactly the same time. If Martin Luther King had never been born, then someone else would have led the civil rights movement at the same time. Thus, Thomas Edison and Martin Luther King were "agents of change," but were not the "causes of change."

The same is true of Lech Walesa. Poland's last crisis war was World War II, and Poland's awakening period occurred beginning in the 60s and 70s, same as in America.

An awakening period is characterized by a "generation gap" which pits the coming-of-age younger generation against their war hero parents' generation. The period is characterized by little violence, or at most sporadic violence, but also by huge political battles, in the form of riots and demonstrations by the younger generation.

The awakening period usually climaxes with an "internal revolution," which results in some change, and which establishes which generation "wins" the awakening period. In America, the awakening period climaxed with President Richard Nixon's resignation in 1974, which established the younger generation as the winner; in China, the awakening period climaxed with the brutal massacre of the students at the 1989 Tiananmen Square demonstrations, establishing the older generation as a "winner."

In Poland, the awakening period climaxed with the August 1980 labor strike which forced the government to back down. Things always happen in their time. Lech Walesa was the agent of change, but the confrontation occurred because large masses of people across Poland were ready to force a change, and were looking for a way to do it. If Walesa hadn't been there, then the change would have happened anyway. (31-Aug-05) Permanent Link
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U.S. building quarantine stations in airports around the country

With the threatened spread of bird flu, polio and tuberculosis, the Centers for Disease Control and Prevention plans to build quarantine stations in international airports around the country.

If an epidemic or pandemic is looming, then the quarantine stations will be used as a "firebreak" to keep the disease out of the United States.

These will come none too soon, as a number of exotic diseases are gaining ground:

It was only a couple of decades ago that it was thought that polio and tuberculosis could be completely eliminated, but now these diseases are experience a resurgence, at the same time that HIV/AIDS is spreading across Asia, and a global bird flu pandemic might occur at any time. (31-Aug-05) Permanent Link
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Departing Fed Chairman Alan Greenspan sings schizophrenic swan song

Is the economy strong or is it in danger? Greenspan played both sides in a speech on Friday and another speech on Saturday. The two speeches were given to central bankers, and are likely to be Greenspan's last before he steps down as Fed Chairman in January.

Ever since February of this year, when repudiated and reversed his thinking of ten years, and later said that global interest rates are a "conundrum," Greenspan's speeches have been, at best, ambiguous, and the two swan song speeches he gave this weekend are the same.

Actually, Greenspan's analysis was very interesting in the way he tied together his view that the economy is doing well with his warnings about the future.

His argument about the strength of the economy is based in its flexibility. He's made this argument in previous statements, when he particularly praised hedge funds for acting as a kind of safety valve.

In Friday's speech, he said:

"The more flexible an economy, the greater its ability to self-correct in response to inevitable, often unanticipated, disturbances. That process of correction limits the size and the consequences of cyclical imbalances. Enhanced flexibility provides the advantage of allowing the economy to adjust automatically, reducing the reliance on the actions of monetary and other policymakers, which have often come too late or been misguided.

In fact, the performance of the U.S. economy in recent years, despite shocks that in the past would have surely produced marked economic contraction, offers the clearest evidence that we have benefited from an enhanced resilience and flexibility."

Now, here's how he turned his positive message into a warning. He said that stock values (asset values) and real estate home values have increased beyond their historic values.

He blamed these increases on the very same flexibility in the economy that he just said was valuable:

"Thus, this vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent. To some extent, those higher values may be reflecting the increased flexibility and resilience of our economy. But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums."

In other words, investors have been taking advantage of the economy's flexibility by investing too much, and creating a bubble in both stocks and real estate.

This paragraph ends with an extremely harsh warning: he says that the bubble will burst, and when it does, it will be painful.

Regular readers of this web site know that I've blown hot and cold on whether I believe that Greenspan knows what's going to happen, especially since his dramatic reversal last February. Logically he should: He was born in 1926, he grew up during the Great Depression of the 1930s, and he can't help but recognize that disaster is in the air because he's seen it before -- unlike younger investors and analysts who are too young to have any idea what's happening.

This speech seems to do what he has to do. He can't explicitly say the stock bubble will burst without being blamed for causing a panic, but he can give a warning that will be ignored, so that he can say "I told you so" later.

I would feel more confident of his views if it weren't for the following paragraph from his speech:

"We weathered a decline on October 19, 1987 of a fifth of the market value of U.S. equities with little evidence of subsequent macroeconomic stress--an episode that provided an early hint that adjustment dynamics might be changing. The credit crunch of the early 1990s and the bursting of the stock market bubble in 2000 were absorbed with the shallowest recessions in the post-World War II period. And the economic fallout from the tragic events of September 11, 2001, was limited by market forces, with severe economic weakness evident for only a few weeks. Most recently, the flexibility of our market-driven economy has allowed us, thus far, to weather reasonably well the steep rise in spot and futures prices for crude oil and natural gas that we have experienced over the past two years."

These are his examples of how the flexibility of the American economy but unfortunately they don't make sense.

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

He says that the flexibility of the US economy allowed all these good things to happen. There was a mild stock market panic in 1987, and the economy recovered without too much pain, but as the adjacent graph shows, the S&P 500 average price/earnings ratio was rising but was at a historic average, around 14-15. Stocks were already priced low enough, relative to earnings, so that they could recover quickly.

That's not true today. Price/earning ratios are much higher, and stocks are way overpriced, as Greenspan himself pointed out in the paragraphs above. A panic today would have much farther to fall than in 1987. (30-Aug-05) Permanent Link
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BBC warns that bird flu pandemic can cause 1930s style Great Depression

Developed countries will suffer the most, according to the BBC World Service "analysis" segment for August 25, 2005.

A global human pandemic would cause "worldwide economic mayhem," which would result in economic hardships similar to the 1930s Great Depression, according to the report.

People in developed countries will suffer the most because these people do not have the ordinary day-to-day survival skills, such as using backyard gardens to feed their families, that people in less developed countries have had to learn for survival.

The bird flu has not yet mutated to a form that can easily spread from human to human, but that mutation appears to be all but certain, and may occur next week, next month or next year. Such a mutation would trigger a worldwide pandemic that would kill hundreds of millions of people, similar to the Spanish Flu pandemic of 1918.

Conflict risk level for next 6-12 months as of: 30-May-2005
W. Europe 1 Arab Israeli 2
Russia Caucasus 2 Kashmir 1
China 2 North Korea 3
Financial 3 Bird flu 3
Key: 1=green 1=Low risk 2=yellow 2=Med 3=red 3=High 4=black 4=Active

From the point of view of Generational Dynamics, this is the kind of linkage we've discussed frequently.

A regional war in any of The Six Most Dangerous Regions of the World would trigger a world war because America and other countries would immediately be forced by existing treaties and identity group relationships to enter such a war.

A major financial crisis is coming anyway, because the true value of the stock market is at Dow 4500, meaning that stocks are overpriced by over 100%. This can easily be seen by looking at standard price/earnings ratios.

A war would certainly trigger a financial crisis, but a financial crisis would almost certainly trigger a war. One of many possible scenarios is this: China's economy and society are unraveling, as the country heads for a certain civil war, and an international financial crisis would certainly trigger it. China would react by attacking Taiwan or Japan, leading to the world war we've discussed.

Now we can throw bird flu into the mix. A bird flu pandemic would trigger the financial crisis that would trigger the world war. (For those who accuse me of being too gloomy, here's an "optimistic" scenario: The bird flu may kill one or two billion people, reducing the population available for a world war.)

A world war could not directly trigger a bird flu pandemic, but it might do so indirectly as follows: A world war would result in a breakdown in the enforcement of worldwide health protocols that are designed to prevent the spread of contagious diseases, and in particular, infected birds will no longer be culled (killed) as they have been in the past. This will create an environment in which the bird flu can mutate more quickly and easily, and so a bird flu pandemic is more likely to spread quickly.

So we have 8 different risk factors in my "conflict risk level" graphic (shown above). These risk factors are roughly independent as long as none of risks has been realized; but they're interdependent in the sense that the realization of any one of the risk factors could trigger all the others within one or two years. (25-Aug-05) Permanent Link
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Violence increases throughout Mexico as illegals pour across U.S. border

It's been 85 years since the end of the Mexican Revolution, and from the point of view of Generational Dynamics, a new Mexican Revolution is overdue. There are signs that it's building now:

All of these are trends that point to a problem that is getting worse with time, with every expectation that those trends will continue.

From the point of view of Generational Dynamics, Mexico is well into a generational crisis period. Mexico's last crisis war was the Mexican Revolution of 1910-20. Historically, 87% of all crisis wars begin less than 85 years after the previous crisis war, and so Mexico is more than ready for a new crisis war, quite possibly led by the Zapatistas.

Whatever happens, the US is certain to be involved, because of the number of Mexican immigrants in America, especially in California. Some 10 million of California's 35 million people -- almost 1/3 -- are Mexican immigrants, 70% of them illegal. Mexicans in California make far less than native Californians, and use far more in public services, including welfare programs. This is precisely the kind of racial division that precipitates a civil war, and it seems likely that the new Mexican civil war will extend into America's southwest. (25-Aug-05) Permanent Link
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Europe scrambles for cover as bird flu speeds past Asia

Holland and Germany order farmers to keep all birds indoors, in order to protect their meat industry. An infestation of bird flu would might require the culling (killing) of millions of chickens, ducks, turkeys, geese and other birds, and could cost Holland alone hundreds of millions or billions of euros.

The reason for the concern is clear from this map from the Recombinomics web site:

Bird flu outbreaks as of 23-Aug-2005<font size=-2>(Source:</font>
Bird flu outbreaks as of 23-Aug-2005(Source:

The May version of this map was practically bare, appearing mainly in the the Qinghai Lake region of China (on the far right of the above map).

The July map (see the yellow circles in the map above) showed the first major signs of the virus spreading toward Europe.

The August 23 map, shown above, makes it clear that Europe is not far off, especially when the massive bird migrations begin in the next couple of weeks.

However, the European Union and other European countries are not following Holland's example. According to the EU Directorate for Consumer Health and Protection, the probability of bird flu reaching Europe is "relatively low." I guess they haven't seen the map above.

Conflict risk level for next 6-12 months as of: 30-May-2005
W. Europe 1 Arab Israeli 2
Russia Caucasus 2 Kashmir 1
China 2 North Korea 3
Financial 3 Bird flu 3
Key: 1=green 1=Low risk 2=yellow 2=Med 3=red 3=High 4=black 4=Active

Meanwhile, the World Health Organization has issued the strongest warning yet of the danger of bird flu mutating to a form that allows one human to pass it to another. The virus has been mutating anyway, and is becoming increasingly efficient in spreading from region to region among birds, and has spread to other animals. It's already spread to several new species, including cats and tigers.

A mutation allowing human to human transmission could happen next week, next month or next year, and now seems all but certain. (24-Aug-05) Permanent Link
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Spectacular Islamist terrorist attack in Bangladesh throws country into panic

On Wednesday at 11-11:30 am, hundreds of bombs exploded almost simultaneously in major cities across the country.

A banned Islamist group, Jamaat-ul-Mujahideen, took credit for the bombings, according to leaflets left at the bomb sites.

“It is time to implement Islamic law… there is no future with man-made law,” the leaflets said. “We are warning Bush and Blair to abandon occupation of Muslim countries. NGOs are warned to stop anti-Islamic activities… else they will be completely uprooted.” Bangladesh is the third-largest Muslim-majority nation in the world.

India, Pakistan, Bangladesh and Kashmir. <font size=-2>(Source: Peter N. Stearns)</font>
India, Pakistan, Bangladesh and Kashmir. (Source: Peter N. Stearns)

Two people were killed, and 140 were injured. But the meticulous preparation that was required and the involvement of so many people, while still catching the government by surprise, has raised concerns about the stability of the country, and has spread fear among the population. A one-day general strike has been called across Bangladesh, and there are fears of additional violence.

A tumultuous history has gotten the country to this point.

One of the most brutal, genocidal wars of World War II was the war between Muslims and Hindus on the Indian subcontinent.

Hoping to prevent such a war from ever occurring again, the United Nations partitioned the Indian sub-continent following World War II into separate countries for Hindus and Muslims, India and Pakistan, respectively. What we now call Bangladesh was the eastern region of Pakistan. However, East Pakistan's mostly Bengal population (language: Bengali) was in constant friction with West Pakistan's more multiethnic population (language: Urdu). As a result, East Pakistan broke off as the People's Republic of Bangladesh ("Bengal nation") in 1971.

The partitioning of the Indian subcontinent did not resolve all the border issues. One of the most dangerous regions in the world is Kashmir, which was the ancestral home of the July 7 suicide bombers on the London subways.

The bombings across Bangladesh this week have highlighted disagreements over another border area, the one separating India from Bangladesh. The bombing has reopened mutual rifle firing along this border.

Conflict risk level for next 6-12 months as of: 30-May-2005
W. Europe 1 Arab Israeli 2
Russia Caucasus 2 Kashmir 1
China 2 North Korea 3
Financial 3 Bird flu 3
Key: 1=green 1=Low risk 2=yellow 2=Med 3=red 3=High 4=black 4=Active

Bangladesh and America have had excellent relations with one another, thanks especially to the $100+ million annual economic aid from America. However, the country is 90% Muslim, and it's in a generational crisis period, like most other countries that fought in World War II. Thus, it's possible that the current skirmish could spiral out of control into a larger war, including a nuclear war between Pakistan and India over Kashmir. (20-Aug-05) Permanent Link
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Pundits claim that antiwar movement is gaining steam with Cindy Sheehan

Oh really? That's news to me. Ummmmm, where are the college students?

It was just a month ago when there was a "Karl Rove" scandal that was going to cause a lot of problems in Washington. Today it's barely even remembered.

Today, the scandal du jour is the new antiwar movement. Cindy Sheehan, who lost her son in Iraq, is demanding a visit with George Bush during his Crawford, Texas, vacation. (Sheehan has briefly left Crawford to care for her ill mother.)

I've been hearing about a resurgent antiwar movement ever since the Afghan war was declared a "quagmire" within a week after we landed there, shortly after 9/11.

On Thursday I was listening to Pat Buchanan on MSNBC. He foresees a powerful resurgence of the antiwar movement, thanks to Sheehan and others. Buchanan ought to know. He was President Richard Nixon's speechwriter when college students were hanging Nixon in effigy, demanding that we pull out of Vietnam. Yes sir, Buchanan ought to know.

Except, duh!!! Where are the college students hanging George Bush in effigy?????

Answer: There aren't any. If you want to see college students demonstrating, take a look at Iran. One week we see demonstrating college students demanding more rights for women, and this week we see demonstrating college students demanding development of nuclear technology.

Why am I the only one who notices things like this? You don't have to understand the entire theory of Generational Dynamics to realize that there's a big difference between the American antiwar movement today versus in the 1960s, and the demonstrations today versus those in Iran today.

(À propos to this, I recently commented on the obvious generational explanation for the French rejection of the EU constitution, but not one pundit I've seen has yet picked up on it. These people are totally blind to even the simplest and most obvious generational interpretation of events.)

As I've said, America is in a "generational crisis" era today, and so you aren't going to see any college students demonstrating. There's no generation gap today.

As I've explained many times, America in the 1960s was in a "generational awakening" period, where there is massive political conflict between war heroes from the previous crisis war and their children, born after the last crisis war.

That's why you saw college students rioting and demonstrating in the 1960s. Iran is in a generational awakening period today (one generation past the 1980s Iran/Iraq war), and that's why you see college students demonstrating there today.

But you won't see American college students today demonstrating against the war. There's no "generation gap" today, as there was in the 1960s. The people demonstrating against the war today are exactly the same people who were demonstrating in the 1960s -- except that now they're 40 years older! It wouldn't surprise me if I learned that Cindy Sheehan was carrying placards in the 1960s, or even burning her bra. Those tactics work in a generational awakening period, but not in a crisis period.

With regard to the question of what's going on in Iraq, both the Republicans and the Democrats are completely misreading what's going on in Iraq. The Iraqis themselves do not want a civil war or any other kind of war, as I've said on my web site a million times. But Iraq is heading towards becoming a battlefield in the imminent clash of civilizations world war.

Republicans like Pat Buchanan have been talking about pulling out of Iraq, but they're wrong to think that the Iraq war is going to end anytime soon. Actually, my expectations are that when the "clash of civilizations" world war breaks out, our forces will still be there. I believe that historians will look at the Iraq war as one of the early battles of the world war, which will have already begun on 9/11.

And the Democrats are wrong to think that the "antiwar" movement is going to be revived. This is silly 60s stuff which is completely impossible today.

That's not to say that there won't be bitter political battles over the war in Iraq. But these battles are not generational, and they don't represent an antiwar movement. They represent party against party, red states against blue states. And that means that they will never be anywhere near as virulent as they were in the 60s. (19-Aug-05) Permanent Link
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Australia seeking hairdressers and doctors

Australia is seeking 20,000 skilled immigrants to fill job vacancies in its biggest global recruitment drive since the 1950s, according to the Australia Department of Immigration.

However, only those with special skills need apply.

The particular skills most in demand are doctors, hairdressers, mechanics, boilermakers, pharmacists and accountants. (17-Aug-05) Permanent Link
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Israel withdraws from Gaza amid hopes for peace and fears of instability

Here's what you should watch for in the weeks ahead.

As of Monday, Israel has declared that all Jewish settlements in the Gaza strip are illegal. All Jewish settlers must withdraw by Wednesday or be removed by force. Resistance by Jewish settlers so far has been peaceful, and Palestinian militia groups have remained peaceful as well.

The optimistic view of the future is that the Palestinians and Israelis will now begin to settle down into a pattern for peace, leading to side-by-side Palestinian and Jewish states.

However, Generational Dynamics predicts that that won't happen. The easiest way to understand this is via the concept of "attractor" that I introduced in Chapter 4 of my new book, Generational Dynamics for Historians, and to contrast the situation in Palestine with the situation in Iraq.

Palestine and Israel are in a "generational crisis" period. This means that the millions of random, chaotic political acts that occur every day are "attracted" increasingly to war. This happens because of generational changes that have been occurring, based on the fact that the last crisis war was the genocidal crisis war between Jews and Arabs in the late 1940s.

Iraq is in a "generational awakening" period, since only one generation has passed since the genocidal Iran/Iraq crisis war of the 1980s ended, and the random political acts are "attracted" to peaceful but tumultuous political conflict. That's why there's been no civil war in Iraq, even though journalists, pundits, and high-priced analysts have been predicting a civil war in Iraq for two years. As I've explained a million times in the last two years on this web site, a civil war has never, throughout history, occurred within one generation from the end of a crisis war.

Despite the repeated attempts by well-funded terrorist leader Abu Musab al-Zarqawi to instigate a civil war -- mainly by importing suicide bombers from Saudi Arabia and Jordan -- he's failed completely to do so. There are no Shi'a, Sunni and Kurdish armies fighting with each other. Instead, their leaders are all locked in a room arguing over the form of the new Constitution. That's how the "attractor" concept works. No matter what the provocation, the millions of political acts are "attracted" to peaceful political confrontation, not war.

But in the Gaza Strip and the West Bank, the millions of political acts are "attracted" to increasing violence. A new major genocidal crisis war between Jews and Arabs will occur with almost 100% certainty within a few years, and it's more likely to occur sooner, rather than later.

That's why the region will not settle down into a pattern of peace. The region is not "attracted" to a pattern of peace. The cockeyed optimists who are hoping for that are deluding themselves.

There may be brief periods when peace seems to be taking hold. One of these occurred in January, when Mahmoud Abbas was elected Palestinian Authority president, and promised to negotiate with Israel and bring peace. But the events that occur in a generational crisis period, the "attraction" to a new genocidal crisis war, are completely out of control of any politicians. The new war will come from the great masses of people, driven by the younger generations, impatient for change. Politicians can no more stop such a war than they can stop a tsunami.

The same "attractor" principles are true if some minor armed conflict begins. In Iraq, a minor armed conflict between Sunnis and Shi'as would extinguish itself fairly soon; but a minor armed conflict between Palestinians and Jews might well spiral into full scale war.

A brief period when peace appears to be taking hold is like a heat wave in New York in November. The fact that a heat wave occurs at that time doesn't mean that winter isn't coming.

With all that in mind, here are some things to watch out for in the next few weeks and months:

Each of these questions has a "peaceful" alternative and a "violent" alternative. Generational Dynamics predicts that events will be more "attracted" to the violent alternative, and that eventually the violent acts will spin out of control into a new genocidal crisis war that will engulf the entire region. (16-Aug-05) Permanent Link
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Feminism flourishes in Iran, as the international crisis on nuclear weapons intensifies

Iran's new president, Mahmoud Ahmadinejad, named a hardline Islamist cabinet on Sunday, signalling a strongly Islamic direction, both domestically and internationally.

President Mahmoud Ahmadinejad of Iran<font size=-2>(Source: )</font>
President Mahmoud Ahmadinejad of Iran(Source: )

The political turmoil in Iran is coming to a boil as President Ahmadinejad moves the country in an increasingly ultra-Islamist direction, courting conflicts with the international community over the development of nuclear fuel and with its own youth over the issue of women's rights.

Iran is exhibiting some of the classic signs of a "generational awakening" period, with a growing level of political conflict that resembles the level of conflict in America's last generational awakening period in the 1960's.

John F. Kennedy became U.S. President in 1961, and was recognized as a young, charismatic leader who would change the country's direction. He was a World War II hero, and remembered well the horrors and genocidal atrocities of that war. Thus, he saw his primary job as protecting the country from a new world war with the Communists in Russia and China. However, he immediately ran into political turmoil. Shortly after taking office, he and the country suffered a major international embarassment in a confrontation with Russia known as the Bay of Pigs invasion of Cuba. Later, Kennedy launched policies that led to the Vietnam War. Had he not been assassinated in 1964, he would have faced the same "generation gap" inspired student-led riots and demonstrations against the war. As it was, the antiwar movement, along with the "racial equality movement and the "environmental movement" and the "women's lib movement" caused Kennedy's two successors, President Lyndon Johnson and President Richard Nixon, to end their presidencies in disgrace.

The reason that this kind of generational political conflict always occurs during a generational awakening period is because it's the time, 15-20 years after the last crisis war, that the kids born after the war, and with no personal memory of the war, begin to make their political views felt. They rebel against the severe rules and compromises imposed by their parents, the generation of war heroes who want only to make sure that their own children never have to suffer another war like the last crisis war. The heart of the conflict is that the war heroes want the people to continue to sacrifice their individual rights for the benefit of the country as a whole, while their children fight for individual rights, including minority rights and women's rights, and the right not to have to make any sacrifices at all for one's country. It is a major principle of Generational Dynamics that this kind of political conflict occurs one generation past the end of any crisis war.

Now we see the young, charismatic Mahmoud Ahmadinejad in a position to change Iran's direction, as the country enters its own generational awakening, one generation following the genocidal Iran/Iraq war.

Ahmadinejad sees his duty as protecting Iran from the danger of another war. Iran had no effective defense to Saddam Hussein's use of poison gas during the Iran/Iraq war, and so Ahmadinejad sees the development of nuclear weapons as a necessary defense when the next war comes. He currently has the support of the young people in Iran for this, but he could lose it quickly if something goes wrong.

Similarly, his announcement yesterday to appoint a staunchly hardline ultra-Islamist cabinet reflects his belief that his country will be best protected if the entire population unites behind conservative Islam.

This is sure to cause conflict, because just as 1960s America spawned a "women's lib" movement, Iran is developing a very strong feminist movement.

Increasingly, college-age women have been demonstrating publicly in favor of women's rights, according to the Boston Globe. Such demonstrations occurred in June at Tehran University, during the election campaign, and are continuing. Indeed, 60% of the students entering Iranian universities are now female, and the number of working women is growing steadily.

Ahmadinejad has indicated that he doesn't plan to curtail women's rights. But let's face it, it doesn't take a lot to get women angry, and with a bunch of old war hero geezers in the cabinet making all the rules, it's only a matter of time before a confrontation develops.

More serious is the growing confrontation with the international community over the development of nuclear fuel. Iran insists that this fuel is being developed only to run electric power plans, but Iran's promises are not well trusted, by the United States or, increasingly, by the European Union.

On Sunday, Iran warned the United States that any use of force over its nuclear program would be a "mistake," "Bush should know that our capabilities are much greater than those of the United States. We don't think that the United States will make such a mistake."

The International Atomic Energy Commission (IAEA), whose mission is to prevent the proliferation of nuclear weapons, is considering turning the matter over to the United Nations Security Council, where the possibility of sanctions against Iran will be discussed.

The women's movement is expected to become increasingly confrontational on the domestic front, and the nuclear weapon issue is shaping up to be as major an international confrontation as the Bay of Pigs invasion was for America. This indicates an increasingly tumultuous political future is at hand for Ahmadinejad and Iran. (15-Aug-05) Permanent Link
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I have moved to a new address.

Please click on the "About" link at the top of this web page for the new address. (14-Aug-05) Permanent Link
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A new mystery: Why is the P/E ratio remaining constant?

If you look at the bottom of this web site's home page, you'll see a graph, automatically updated every week, of the S&P 500-stock index, and the S&P 500 stock price/earning ratio index.

Here's the graph as of today:

S&P 500 Price/Earnings ratio and S&P 500-stock Index as of 5-Aug-2005. <font size=-2>(Source: MarketGauge ® by DataView, LLC)</font>
S&P 500 Price/Earnings ratio and S&P 500-stock Index as of 5-Aug-2005. (Source: MarketGauge ® by DataView, LLC)

See anything strange?

For the last several months, the P/E ratio has been constant -- around 20. As far as I can tell, going back to the 1800s, the P/E ratio has never before remained constant for several months like that.

In fact, it's been almost constant for a full year, especially when you realize that the Presidential election probably pushed the stock market up slightly, as happens in any election year.

What's the explanation? It could be a coincidence, but I don't believe a coincidence like this could go on for so long.

What it must mean is that most investors are making investment decisions based on a formula, and they're all using the same formula.

And the formula is equivalent to investing in a stock portfolio with an average p/e ratio of about 20.

Does that seem strange to you? Why should it? Do you really think that all those stock analysts think for themselves all the time? They're like everyone else -- they talk to each other, and they all do the same thing.

Actually, I think I know what formula all the stock analysts are using. Several months ago, I read a commentary somewhere that mentioned that most investors were using the "Fed Model" for investments.

I did some investigation, and it turns out that the "Fed Model" is based on one single paragraph and a graphic buried deep in the middle of a 1997 Federal Reserve report. The graphic and the paragraph are as follows:

Graphic on which the "Fed Model" is based
Graphic on which the "Fed Model" is based

"The run-up in stock prices in the spring was bolstered by unexpectedly strong corporate profits for the first quarter. Still, the ratio of prices in the S&P 500 to consensus estimates of earnings over the coming twelve months has risen further from levels that were already unusually high. Changes in this ratio have often been inversely related to changes in long-term Treasury yields, but this year's stock price gains were not matched by a significant net decline in interest rates. As a result, the yield on ten-year Treasury notes now exceeds the ratio of twelve-month-ahead earnings to prices by the largest amount since 1991, when earnings were depressed by the economic slowdown. One important factor behind the increase in stock prices this year appears to be a further rise in analysts' reported expectations of earnings growth over the next three to five years. The average of these expectations has risen fairly steadily since early 1995 and currently stands at a level not seen since the steep recession of the early 1980s, when earnings were expected to bounce back from levels that were quite low."

So, from what I can gather, a sizable majority of investors today are basing their investment decisions on the "Fed Model," which is based on a single paragraph in a 1997 Fed report. It's laughable, but it's true.

Incidentally, in case you were wondering, the correlation shown in the graphic did not work prior to 1982. However, most financial analysts today are kids in their 20s and 30s, so anything before 1982 is ancient history to them anyway.

This observation that most investors and financial analysts are following the same formula ties in with something else.

In May, I wrote an article about stock market volatility. I pointed out that the stock market was getting increasingly volatile, meaning that the marketing was fluctuating wildly.

In that article, I explained that "the volatility means that individual investors are not making decisions based on individual stocks, which they do in normal times; instead, they're nervously making buy/sell decisions based on their "feeling" about where the entire stock market in going. With investors moving in unison, that means that the entire market is subject to volatility that only a single stock would have in normal times, and it means that a scare can cause a panic and a stock market crash."

When I wrote that paragraph, I didn't know what "feeling" the individual investors were getting. But now with the observation that the P/E ratios are remaining constant, we can infer that this "feeling" is based on a formula that they're all using like sheep, so they're all acting roughly in unison. And that formula is probably something close to the "Fed Model."

For some reason, some people think that stock market panics have been banished. I can't imagine why.

But as we discussed in an article last month, the true value of the stock market is at Dow 4500, and so the market today is well over 100% overvalued. When a panic occurs, then the market is liable to fall to the Dow 3000-4000 range. (11-Aug-05) Permanent Link
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U.N. predicts severe North Korea famine this fall

This could be a reason why North Korea is close to preemptive war.

A million people are already forced to forage for grasses and acorns, and that number will increase to over 3 million by the end of the year, according to a statement by James Morris, executive director of the UN's World Food Program.

A shortfall of donations this year to the WFP has made the problem critical.

“This year’s food crisis in the North has been exceptionally severe owing to an acute lack of affordable local staples, not least because of record-high cereal prices in private markets,” says Morris.

Indeed, world food prices have been skyrocketing in the last five years. While inflation has risen just 9% since 2000, wheat has increased 20-50% in prices, oats 30%, and rye 50%. Other food prices have risen comparably. (See previous weblog item, below.)

These food price increases are creating poverty, starvation and malnutrition among huge numbers of additional people around the world.

Conflict risk level for next 6-12 months as of: 30-May-2005
W. Europe 1 Arab Israeli 2
Russia Caucasus 2 Kashmir 1
China 2 North Korea 3
Financial 3 Bird flu 3
Key: 1=green 1=Low risk 2=yellow 2=Med 3=red 3=High 4=black 4=Active

From the point of view of Generational Dynamics, the massive increasing starvation in North Korea is a signal that war may be approaching.

The reason is simple: When millions of men are unable to feed themselves or their families, then they have nothing to lose by going to war. In many cases, joining the army is the best way to get regular meals, as well as a salary to send home.

This is especially true during generational crisis periods, which North Korea and most other nations of the world have entered, 60 years after the end of WW II.

During a generational crisis period, a war can become forced on the government. The starving people of North Korea are not going to tolerate starvation for long, and they'll turn against the government. The government, faced with the possibilty of civil war, will deflect the war against other enemies -- Japan, South Korea, America, etc., in this case.

The nuclear non-proliferation talks with North Korea are not getting anywhere, and there never was any chance that they would. One commentator describes the talks as a "charade masquerading as diplomacy," and as an "international diplomatic game in which North Korea pretends to consider denuclearizing, while five other countries at the table pretend to believe Pyongyang is serious." It's likely that the only reason that North Korea rejoined the talks in the first place was in the hope of getting further financial and food aid from China, South Korea and America.

North Korea has been mobilizing for war for over a year now, and recently began blocking international communications.

If WFP director Morris is correct that three million will be starving by winter, then it's hard to see how the country can remain stable for long. (10-Aug-05) Permanent Link
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Food prices continue to increase dramatically around the world

Hunger, poverty and starvation are spreading to increasing masses of people around the world, as the growing world population makes food scarcer and scarcer.

From the point of view of Generational Dynamics, this is called "the Malthus Effect," as I described in an article I wrote last year. I estimated that food production grows at 0.96% worldwide, while population grows at 1.72% per year.

The Malthus Effect refers to the fact that while food production grows exponentially, the population of the world also grows exponentially, but at a faster rate. The result is that food becomes more and more scarce and, by the law of supply and demand, it also becomes more expensive.

According to a study (PDF) by North Dakota State University, food prices have been increasing dramatically since the year 2000. Here are some sample prices:

                     ------ Prices -------    -- Increases --
                     1999-   2000-   2004-    Since    Since
          Commodity   2000    2001    2005     1999     2000
--------------------  ------  ------  ------   ------  -------
        Spring wheat    2.85    2.79    3.35   17.54%   20.07%
        Winter wheat    2.49    2.25    2.87   15.26%   27.56%
         Durum wheat    2.58    2.48    3.83   48.45%   54.44%
                Oats    0.90    0.86    1.11   23.33%   29.07%
         Feed barley    1.39    1.37    1.50    7.91%    9.49%
            Soybeans    4.19    4.23    6.02   43.68%   42.32%
         Alfalfa hay   43.00   46.00   63.89   48.58%   38.89%
           Other hay   29.00   31.00   46.35   59.83%   49.52%
       Oil sunflower    6.56    6.06   11.96   82.32%   97.36%
   Non-oil sunflower   13.50   11.30   17.74   31.41%   56.99%
              Canola    7.50    6.55   11.40   52.00%   74.05%
            Flaxseed    3.79    3.31    7.35   93.93%  122.05%
                 Rye    1.44    1.31    1.96   36.11%   49.62%
            Potatoes    5.60    5.45    5.03  -10.18%   -7.71%
Beef 400-500# Steers   97.68  106.07  128.86   31.92%   21.49%
Beef 800-900# Steers   80.87   85.79   99.59   23.15%   16.09%
           Cull cows   36.50   39.80   50.40   38.08%   26.63%
       Hogs - 250 lb   32.50   43.10   51.12   57.29%   18.61%
      Slaughter ewes   25.00   31.00   36.00   44.00%   16.13%
     Slaughter lambs   69.57   72.74   94.59   35.96%   30.04%
        Feeder lambs   76.64   83.78  115.34   50.50%   37.67%
                Milk   13.20   11.30   15.22   15.30%   34.69%
Consumer Price Index  168.80  175.10  190.70   12.97%    8.91%

The bottom line of this chart shows that the inflation rate (CPI) has been just under 9% since 2000. But food prices have generally been increasing at several times the inflation rate. In this list, only potatoes have fallen in price.

When Thomas Roberts Malthus wrote his famous Essay on Population in 1798, he made some mistakes, but his basic point that population grows faster than the food supply was correct. Malthus' conclusion was that famines would result. This was the wrong conclusion: the result is poverty and malnutrition.

That's what's happening today. From the point of view of Generational Dynamics, this is what happens in most generational cycles. When food becomes too scarce and the price of food becomes too great, then a genocidal crisis war occurs. This reduces the population and restores the balance between food and population. For those who don't like this conclusion, let me assure you that it's been happening for millennia, and it's happening again now.

Since the end of World War II in 1945, it appears that the following has happened: In order to prevent another world war, countries of the world, led by the Rockefeller Foundation, launched a "green revolution" which brought modern agricultural techniques and technology to countries around the world. The Green Revolution evidently greatly increased the supply of food in the world throughout the 1960s. Since then, addition application of new agricultural technology have produced smaller and smaller benefits, as would be predicted by the economic Law of Diminishing Returns.

It appears that the effects of the Green Revolution petered out in the mid-1990s, as world malnutrition has been increasing since then.

Furthermore, worldwide food prices have been increasing dramatically since 2000. These increases have been primarily driven by the demands of China's exploding bubble economy, but it would have happened anyway.

As more and more people in the world are forced into poverty and starvation because of the Malthus Effect, the political state of the world is becoming increasingly unstable. Generational Dynamics predicts that we're headed for a new "clash of civilizations" world war, and it will happen sooner rather than later. (10-Aug-05) Permanent Link
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Bird flu spreads throughout Asia, heads for Europe

A new vaccine is announced, but its effectiveness is questioned.

The bird flu which, just two years ago, was restricted just to Vietnam, has been mutating and has now spread to some ten nations throughout all of Asia, far to the west and north.

Bird flu - infected breeding grounds of migratory birds <font size=-2>(Source: WSJ)</font>
Bird flu - infected breeding grounds of migratory birds (Source: WSJ)

As I wrote in an article a month ago, Chinese scientists confirmed that bird flu had spread to migratory waterfowl in one of the world's major breeding grounds, Qinghai Lake, and that it was poised to continue spreading.

Since then, the bird flu has spread to Russia, Mongolia and Kazakhstan. Previously, it had already spread from Vietnam to Thailand, Cambodia and Indonesia. It's expected to continue spreading, and should reach Europe within a couple of months, especially inasmuch as millions of birds will begin migrating at the end of August.

Although several dozen people have died of bird flu in the last two years, all human bird flu cases have been caught by close contacts with birds, as far as is known. No human-to-human contamination has yet manifested itself, although experts are saying that conditions are now exactly right for such a mutation to occur. Once a mutation allowing human to human transmission occurs, possibly this fall or winter, a worldwide bird flu pandemic is expected, killing hundreds of millions of people worldwide.

A new bird flu vaccine has been developed and tested with promising results, according to an announcement by Dr. Anthony S. Fauci, director of the National Institute of Allergy and Infectious Diseases.

Conflict risk level for next 6-12 months as of: 30-May-2005
W. Europe 1 Arab Israeli 2
Russia Caucasus 2 Kashmir 1
China 2 North Korea 3
Financial 3 Bird flu 3
Key: 1=green 1=Low risk 2=yellow 2=Med 3=red 3=High 4=black 4=Active

Because of the urgency of the situation, America plans to purchase millions of doses of the new vaccine, according to Fauci, though the exact number was not announced.

However, the new vaccine is not a "silver bullet," according to the World Health Organization (WHO).

From the point of view of WHO, the most obvious reason is that a vaccine might protect the Americans who get it, but will do nothing for the vast majority of the people in the world.

But in fact the new vaccine may not ever be very helpful to anyone, according to a commentary on the vaccine announcement in Recombinomics, which points out the following:

(8-Aug-05) Permanent Link
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Iran's plan to develop nuclear fuel is "irreversible"

France calls it a "major international crisis"

On Tuesday, Iran sent the following statement to the International Atomic Energy Commission:

"Extraneous pressures prevented timely and serious consideration by E3 [Germany, France and Britain]/EU of this proposal which has the potential of providing a framework in which concerns of all sides are reasonably allayed. ...

Iran made it clear in Geneva that any proposal by the E3/EU must incorporate E3/EU's perception of objective guarantees for the gradual resumption of the Iranian enrichment programme, and that any attempt to turn objective guarantees into cessation or long-term suspension were incompatible with the letter and spirit of the Paris Agreement and therefore unacceptable to Iran. ...

Against all its sincere efforts and maximum flexibility, Iran has not received a proposal as of today, and all public and diplomatic information, particularly the letter of 29 July 2005 of the E3 Ministers, indicate that the content of the eventual proposal will be totally unacceptable.

We have been informed that the proposal not only fails to address Iran's rights for peaceful development of nuclear technology, but even falls far short of correcting the illegal and unjustified restrictions placed on Iran's economic and technological development, let alone providing firm guarantees for economic, technological and nuclear co-operation and firm commitments on security issues. ...

It is now self-evident that negotiations are not proceeding as called for in the Paris Agreement, due to E3/EU policy to protract the negotiations without the slightest attempt to move forward in fulfilling their commitments under the Tehran or Paris Agreements. ...

In light of the above, Iran has decided to resume the uranium conversion activities at the UCF in Isfahan on 1 August 2005."

The response from EU members has been sharp.

"The Iranian affair is very serious," said French Foreign Minister Philippe Douste-Blazy. "It could be the start of a major international crisis."

"Were Iran to resume currently suspended activities, our negotiations would be brought to an end and we would have no option but to pursue other courses of action," said a letter from the EU to Iran. "We therefore call upon Iran not to resume suspended activities or take other unilateral steps."

Although not specifically mentioned, the "other unilateral steps" will be to refer the matter to the United Nations Security Council. The UN may vote to impose some sort of sanctions on Iran, which should leave Iran quaking in their collective boots, assuming that the sanctions aren't vetoed by Russia or China.

The EU's concern is that Iran will be enriching plutonium for use in nuclear weapons. Iran says it's only interested in nuclear electric power plants.

As I've previously explained, Iran is in a "generational awakening" period, which means that the nation will be in a period of severe political conflict caused by a "generation gap" between the liberal college students and hard-line mullahs.

Although there is much inter-generational political conflict, news stories in recent months have made it clear that there's one thing that all the generations agree on: They all want Iran to have nuclear weapons. They want them for national prestige, and they want them for security purposes.

It's interesting to compare Iran's situation, from the point of view of Generational Dynamics, to that of North Korea.

The North Korea nuclear non-proliferation talks have been going on now for 8 days, and are now pretty much deadlocked.

Like Iran, there never was any chance at all that North Korea was going to give up it's nuclear weapon development plans. The only reason that North Korea is participating at all is that they hope to get food and financial aid, without having to give up their nuclear weapons.

But North Korea, in a generational crisis period, is planning to use the weapons in a war. The purpose of the war would be to reunite with South Korea, under North Korean control, and also to gain revenge against Japan for its humiliation of Korea before and during WW II. (My own unsubstantiated speculation is that China and North Korea are already planning a joint campaign against Japan.)

But Iran, in a generational awakening period, is not planning to go to war, even against Israel. Iran will do everything it can to keep its armed forces out of war.

If Iran gets nuclear weapons, the issues will be quite different. Iran will not want to go to war with Israel, but would be willing to provide nuclear weapons to anti-Israeli militia groups like Hizbullah.

Israel is quite well aware of this, so nuclear weapons in Iran would cause Israel to take some sort of action to protect itself. I cannot guess what this action will be, but it could involve bombing some facilities in Iran. Recall that in 1982 Israel bombed and destroyed a factory in Iran which they believed could manufacture nuclear weapons.

Conflict risk level for next 6-12 months as of: 30-May-2005
W. Europe 1 Arab Israeli 2
Russia Caucasus 2 Kashmir 1
China 2 North Korea 3
Financial 3 Bird flu 3
Key: 1=green 1=Low risk 2=yellow 2=Med 3=red 3=High 4=black 4=Active

A recurrence of such a bombing could well trigger a major Mideast war.

So the problem with Iranian nuclear weapons is that they'll destabilize the balance of power in the Mideast, and cause a chain reaction leading to a major war. And that doesn't even count the other problem - that the nuclear weapons might be used on Israel or on Europe or American bases.

From the point of view of Generational Dynamics, the Mideast is replaying the prelude to the genocidal war between Arabs and Jews of the late 1940s, when Palestine was partitioned and the state of Israel was created, and a new genocidal war between Arabs and Jews is not far off. Since there's no guarantee that Israel would survive, this would trigger the "clash of civilizations" world war. (3-Aug-05) Permanent Link
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Russia is barring ABC News reporters from working in Russia

Still infuriated over ABC Nightline's airing of interview with Chechen terrorist warlord Shamil Basayev, Russia's Foreign Ministry says that it will not renew the accreditation of ABC News journalists when they expire.

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As we wrote last week when the interview appeared, Russians are overwhelmingly outraged that ABC News gave air time to the terrorist. In the interview, Basayev took credit for the Beslan school massacre and other terrorist acts, and promised Russia more of the same.

Russia's outrage should not be a surprise. We would have been similarly infuriated if a news organization had given air time to Osama bin Laden a few months after 9/11. In fact, we did express outrage when al-Jazeera aired taped messages from bin Laden. Why ABC News is not able to understand that comparison is beyond me.

According to the statement by the Russian Foreign Ministry,

"Considering all the circumstances of the interview with Shamil Basayev, who has been generally acknowledged as a terrorist, such as the obvious fact of contributing to terrorist propaganda and calling for violence against Russian nationals, Russia has decided to deny the company further accreditation."

The Ministry said that any contact between ABC and Russian state departments and organizations was undesirable.

The particular ABC News correspondent who conducted the interview, Andrei Babitsky, and who is employed by a Russian radio station, will have his employment status reviewed, according to the Ministry.

According to the BBC, Babitsky is seen by Russian officials as a terrorist sympathizer, and note his apparent ease of access to Mr Basayev's hideout in Chechnya - at a time when Russia is offering $10 million for his capture. (2-Aug-05) Permanent Link
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China heading for deflation as manufacturing index shows weakness

There are signs that China's bubble economy may be bursting

For over twenty years, China's economy has been growing at a red-hot 9-10% per year.

For 2-3 years, China's been trying to slow down its economy, but have failed to do so. The idea was to slow it down just a little -- enough to stablize it for a "soft landing," but not too much, which might cause a "hard landing." For example, China's economy grew by 9.7% in the first half of 2004, much more than the 7% that Beijing's planners had been aiming for.

Well, you know the old saying: Be careful what you wish for.

There's much one can't be sure of when dealing with a government as secretive as China's, but there are some initial signs that China's economy may be unraveling faster than Beijing would like.

According to an article by the Chinese Xinhua news service:

"At the second China economic observation forum, some economists predict that China's economy may fall into a deflation characterized by persistent consumer price decrease.

Lin Yifu, Director of China Center for Economic Research (CCER) of Beijing University, said at the forum held quarterly by CCER that owing to the overproduction in most manufacturing sectors since 1998 and the to-be-overcapacity from over-investment in some sectors in 2003 and 2004, China is expected to see deflation caused by overcapacity in the latter half of 2005.

Wang Jian, Deputy Secretary General for the Economic Research Institute under State Development and Reform Commission, said that decreasing growth of Consumer Price Index (CPI), dropping enterprise profits, as well as losses in downstream industries are all signals that China's economy has taken a cooling trend."

China is not usually forthcoming when its economy is in trouble, so for a significant Chinese official to admit even the possibility of deflation indicates a great deal of concern.

The first announcement of deflation appeared in recent weeks, as it became clear that Chinese manufacturers are continuing to cut prices. Chinese manufacturers have been increasing production and cutting prices in the hope of catching up.

What's happening in China is the same as has been happening in America, although the details are different.

Since 2002, I've been predicting that America is entering a new 1930s style Great Depression, and that there would be a stock market collapse, with the Dow falling to the 3000-4000 range probably by the 2007 time frame. This is a consequence of the huge 1995-2000 stock market bubble, which has not yet fully unraveled. Even now, as that time approaches, I see no reason to revise that prediction.

The same Generational Dynamics methodology which arrives at that conclusion also predicts that America is in a deflationary period, with prices expected to fall by 30% by 2010.

The reason this happens is because of the crusty old bureaucracy phenomenon, where the new businesses that were created in the 1930s have now become sluggish and crippled from bureaucracy, as employees become stale in their jobs.

In America, this has caused jobs to flee massively to China, where low-paid workers turn out products at less than half the price that America's factories can.

What's a little harder to understand is that China is now also succumbing to the "crusty old bureaucracy" phenomenon. Although China's red-hot economy has been expanding at 9-10% a year for over 20 years, this has been accomplished by Chinese businesses with the same kind of entrenched bureaucracy. For a business to survive it must constantly change, but China's success at making standard products like T-shirts has worked for many years, but left China's businesses as stale as America's are.

Thus, China is passing through the same kind of unraveling generation cycle that America, Japan and Europe are. These regions' economies are all closely linked together so when one goes down, all of them will go down.

The signs of a weakening Chinese economy include a weakening in Chinese manufacturing in recent months.

Baltic Dry Index, 1996-present <font size=-2>(Source: FinData)</font>
Baltic Dry Index, 1996-present (Source: FinData)

Another dramatic sign is the continuing precipitous fall in the Baltic Dry Index (BDI), which measures the shipments of "dry-bulk cargos," commodities like iron ore, grain, cement and coal, shipped in bulk on huge freighters traveling the seas around the world.

When I wrote a lengthy article on this subject last month, I explained how the BDI reflects China's imports of manufacturing commodities, especially iron ore, and that even at that time it had fallen so far since December that a recession in China seemed likely by fall.

Since that time, the BDI has continued to fall, by an incredible 2-3% almost every single business day. This kind of fall in worldwide dry goods shipping prices indicates that something very dramatic is going on.

Yes, it's true that the enormous rise in the BDI in 2003-4 brought additional shippers into the business, with the result that carriers now have some 8% more capacity than they did a year ago, but that alone can't account for a collapse in the BDI from over 6,000 to below 1,800 in a few months.

From the point of view of Generational Dynamics, China, America, Europe, Japan and other countries are all going to suffer the same collapse in stock market value, as stocks are overvalued by 100% or more around the world. The only question is when the cascading fall will begin, and what will trigger the panic that causes it. A failure in China's economy might possibly be such a trigger.

Meanwhile, a new story about a regional mass riot in a Chinese province has surfaced. According to the story in the Washington Post, a student on vacation was riding down the street when his bicycle accidentally collided with a wealthy official's very expensive four-door sedan. Before long, the student had been beaten up, and a riot ensued.

What typically happens in these cases is that word spreads quickly, thanks to mobile phones and text messages, and soon there are thousands of people rioting.

According to the article,

So we're not talking about something small here, not with 3.76 million Chinese involved in 74,000 mass riots in one year. This riot involved 10,000 people, but others have brought in 50-60,000 rioters.

The Chinese security police are very skilled at bringing such riots under control, and they obviously were successful 74,000 times in 2004. But it's only a matter of time before one of these mass riots spirals out of control.

As we wrote about in detail in a lengthy analysis that was posted in January, China's social structure is unraveling rapidly, as can be seen from from the tens of thousands of regional rebellions each year, over 100 million migrant workers, high food prices, high rust belt unemployment, addiction to a bubble economy, unraveling of Mao's social structure and secessionist provinces. Things are coming to a head in China, in both its economy and its social structure. (2-Aug-05) Permanent Link
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Should America have dropped the A-Bomb at Hiroshima and Nagasaki?

On the 60th anniversary, the debate still continues.

On April 12, 1945, Vice-President Harry S. Truman became President of the United States, upon the death of Franklin D. Roosevelt, with World War II still ravaging on. Truman had never been in Roosevelt's inner circle, and suddenly had to make decisions that would affect the lives of hundreds of thousands of American soldiers: Should we invade Japan, and risk the death of thousands of Americans?

The choice was simple: We should not have - according to William M. Burke, who served in WW II, in an article appearing two days ago:

"If American policy-makers had been more rational, in late 1944 they would have tailored their policies to Japan's true situation as a defeated and isolated island nation. After the small fleet of American submarines had gained its stranglehold over Japan's lifeline, policy-makers should have suspended all other operations and waited patiently for Japan to negotiate a withdrawal from its overseas conquests. But considerations of this kind were ignored during the invasion-planning sessions in the Washington of 1945, and in the Smithsonian controversy in the Washington of 1995."

I have to chuckle at statements like this, because nobody is "rational" during a crisis war. America had already seen tens of thousands of its soldiers slaughtered like fish in a barrel on D-Day, 1944. Japan had tortured, beaten and killed American prisoners of war. The level of hatred that the Japanese and the Americans had toward one another was palpable.

Like other countries, America has fought many wars. From the point of view of Generational Dynamics, there are two kinds of wars. Briefly, crisis wars are the most genocidal kinds of wars, the wars where huge masses of people are killed, raped, starved or relocated. America has had only two such wars since its founding. One was World War II, in which America firebombed and destroyed entire cities like Dresden and Tokyo, and dropped two nuclear weapons on Japanese cities. The other was the Civil War, in which northern General Sherman marched through Georgia not only killing everyone in sight, but also destroying all homes and crops so that any survivors starved to death. None of America's other wars -- World War I, Vietnam, the Spanish-American war, etc. -- had this kind of genocidal explosion, and that's why the distinction is important.

An easy way to understand the difference is to ask yourself: Why didn't we drop nuclear weapons on Hanoi to win the Vietnam war? Because there was no public support for any such move. America was defeated politically, and then on the battlefield.

Crisis wars come from the people and non-crisis wars come from the politicians. It was the politicians who led the Vietnam war, and the war was lost because of enormous political opposition from the people.

There was no such political concern over Truman's decision to use nuclear weapons in WW II. Although there were some dissenters, there was no serious political opposition at the time. In fact, there was little political criticism for years. It was the 1960s when the political criticism became serious.

In a sense, Harry Truman was doing what the people wanted him to do. David McCullough, in his biography of Truman, wrote the following: "How could a president, or the others charged with responsibility for the decision, answer to the American people if... after the bloodbath of an invasion of Japan, it became known that a weapon sufficient to end the war had been available by midsummer and was not used?"

The fact is, you can't understand the feelings behind a decision like the use of nuclear weapons after the fact. You can only understand it by studying the attitudes at the time. Let's take a look at what happened in 1945, and what President Truman said at the time (thanks to a web site by Doug Long):

The atom bomb was dropped onto Hiroshima on August 6, 1945.

That same day, Truman made the following statement:

"The Japanese began the war from the air at Pearl Harbor. They have been repaid many fold. If they do not now accept our terms they may expect a rain of ruin from the air, the like of which has never been seen on this earth."

On August 9, an atomic bomb was dropped on Nagasaki.

That same day, President Harry Truman made the following statement:

"The world will note that the first atomic bomb was dropped on Hiroshima, a military base. That was because we wished in this first attack to avoid, insofar as possible, the killing of civilians. But that attack is only a warning of things to come. If Japan does not surrender, bombs will have to be dropped on her war industries and, unfortunately, thousands of civilian lives will be lost.

"Having found the bomb we have used it. We have used it against those who attacked us without warning at Pearl Harbor, against those who have starved and beaten and executed American prisoners of war, against those who have abandoned all pretense of obeying international laws of warfare. We have used it in order to shorten the agony of war, in order to save the lives of thousands and thousands of young Americans.

"We shall continue to use it until we completely destroy Japan's power to make war. Only a Japanese surrender will stop us."

Truman's words are filled with revenge. The later debates do not take these feelings into account.

Truman was even more explicit in a letter he wrote the same day to a Senator who wanted more bombing:

"I know that Japan is a terribly cruel and uncivilized nation in warfare but I can't bring myself to believe that, because they are beasts, we should ourselves act in the same manner.

"For myself, I certainly regret the necessity of wiping out whole populations because of the 'pigheadedness' of the leaders of a nation and, for your information, I am not going to do it until it is absolutely necessary...

"My object is to save as many American lives as possible but I also have a humane feeling for the women and children in Japan."

On August 10, Japan offered to surrender under certain conditions. However, Truman had demanded an 'unconditional' surrender, so the offer was rejected.

Truman wrote the following letter:

"Nobody is more disturbed over the use of Atomic bombs than I am but I was greatly disturbed over the unwarranted attack by the Japanese on Pearl Harbor and their murder of our prisoners of war. The only language they seem to understand is the one we have been using to bombard them.

"When you have to deal with a beast you have to treat him as a beast. It is most regrettable but nevertheless true."

These are the emotions of the time. Those words are not "politically correct" today, but it's the way that most Americans felt at the time. (And incidentally, the Japanese felt the same about us.)

That's what happens during crisis wars, when wars come "from the people."

A crisis war is like a raging typhoon or a tsunami. It has no morality, no matter how destructive it is. It destroys and buries almost everything it touches. It's only in retrospect that morality can be assigned to the actions in a war, but while a crisis war is going on, there's little morality.

These crisis wars happen at regular intervals. Generational Dynamics predicts that we're close to a new such war, the "clash of civilizations" world war, and sooner rather than later. (2-Aug-05) Permanent Link
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The Somalia connection -- The 7/21 London subway bombers were from east Africa

All four suspects are now in custody after an international manhunt captured three suspects in London and one in Rome.

Xray of bomb packed with nails.  This picture is related to the July 7 attacks. <font size=-2>(Source: ABC News)</font>
Xray of bomb packed with nails. This picture is related to the July 7 attacks. (Source: ABC News)

Incidentally, we're not talking about the four perpetrators of the original 7/7 subway bombings. Those were massive blasts caused by four suicide bombers who were killed in the blasts, along with dozens of other innocent people, and so, of course, they will never be in custody.

These suspects are the four perpetrators of the 7/21 subway bombings. Those were not attempted suicide bombings. The four perpetrators left the bombs behind in bags to explode. All four bombs failed to explode, although the bombs' detonators did explode, hurting one person non-fatally.

Thanks to brilliant police work, all suspects were arrested without firing a shot. Yasin Hassan Omar was captured on Wednesday in the city of Birmingham Two of the suspects were arrested Friday in west London, following raids by heavily armed police wearing gas masks and lobbing stun grenades.

Tracing cell phone calls across Europe, police in Rome on Friday arrested Osman Hussain, a naturalized British citizen from Somalia. Osman was the fourth attacker in the botched bombings.

What made such quick work possible was the fact that there are cameras on the subway and on most street corners in London. Investigators were able to go back through the tapes from 7/27 and find pictures of the four suspects and make them public. Civil libertarians object to the use of these cameras, and they're little used in America; but this will increasingly become an issue as the rate of terrorism increases.

Somalia - Crucible for al-Qaeda

Mideast, showing Israel/Palestine, Muslim countries, and Orthodox Christian countries. Somalia and Eritrea are in east Africa.
Mideast, showing Israel/Palestine, Muslim countries, and Orthodox Christian countries. Somalia and Eritrea are in east Africa.

It turns out that all four suspects are from east Africa, three of them from Somalia.

Somalia was in the international news in 1993, when Somali gunmen killed US soldiers and shot down a Black Hawk helicopter in Mogadishu. The incident caused a humiliating retreat of American forces out of Somalia, and was given as one of the reasons that Osama bin Laden believed that he could defeat America with terrorist attacks like 9/11. The Somalia incident was retold in the 2001 movie Black Hawk Down.

Since that time, Somalia has become known as a "Crucible for al-Qaeda," because it has a long, unpoliced coastline that's permitted smugglers and terrorists unfettered travel between Africa and the Arabian peninsula.


According to a recent report by the International Crisis Group:

"Nearly four years after 9/11, hardly a day passes without the "war on terrorism" making headlines, with Iraq, Afghanistan, Indonesia and now London holding centre stage. But away from the spotlight, a quiet, dirty conflict is being waged in Somalia: in the rubble-strewn streets of the ruined capital of this state without a government, Mogadishu, al-Qaeda operatives, jihadi extremists, Ethiopian security services and Western-backed counter-terrorism networks are engaged in a shadowy and complex contest waged by intimidation, abduction and assassination....

During the 1990s, jihadism in Somalia was synonymous with al-Itihaad al-Islaami, a band of Wahhabi militants determined to establish an Islamic emirate in the country. Al-Qaeda also developed a toehold, contributing to attacks on U.S. and UN peacekeepers in the early part of the decade and using the country as a transit zone for terrorism in neighbouring Kenya; some leading members of al-Qaeda's East African network continue to hide in Somalia.

Since 2003, Somalia has witnessed the rise of a new, ruthless, independent jihadi network with links to al- Qaeda. Based in lawless Mogadishu and led by a young militia leader trained in Afghanistan, the group announced its existence by murdering four foreign aid workers in the relatively secure territory of Somaliland between October 2003 and April 2004."

The 7/21 bombers were part of the "Invisible Community" of tens of thousands of Somalians who came to Britain in the 1990s, seeking asylum from the war and famine. Somalia remains a significant source of refugees, providing the third biggest number of asylum seekers in the first quarter of this year.

Why weren't they suicide bombers?

As I was listening to the news coverage on 7/21 of the second round of London subway bombers, I heard something which struck me as very strange: A witness said, "The man put down a bag on the seat and started running away as fast as he could."

It was immediately clear how different the 7/21 bombing was from the 7/7 bombing. The 7/7 bombers were happy to die for their cause, and the 7/21 bombers were not. The 7/7 bombers caused enormous carnage, and the 7/21 bombers botched the job.

Here's the difference: The first group of bombers were born in Britain, but their families were from Kashmir. As I explained in detail after the 7/7 bombings, Kashmir's last crisis war was the bloody mid-1940s crisis war between India and Pakistan, resulting in the partitioning of Kashmir, and enormous and continuous bitterness in Kashmir's Muslim community.

By contrast, Somalia's last crisis war began in 1988 and ended in the early 1990s. Thus, it's been less than 15 years since the end of Somalia's last crisis war. Somalia today is thus in a "generational austerity" period, the era that immediately follows any crisis war.

The second group of bombers grew up during Somali crisis war. Any generation growing up during a crisis war suffers a kind of generational child abuse. People in that generation grow up to be risk averse and indecisive.

So the explanation for the differences between the first and second London bombings was that the first group of bombers was from a community (Kashmir) well into a generational crisis period, while the second group was from a community (Somalia) nowhere near a generational crisis period.

The second group of bombers, having recently experienced a crisis, refused to become suicide bombers, and didn't even have the drive and purposefulness to guarantee that even one of the four bombings would succeed.

This finding is very significant, not only for Generational Dynamics but also for public policy.

Crisis Wars and Suicide Bombers

I've already begun exploring the correlation between crisis wars and suicide bombers in my article on Robert Pape's study of suicide bombers, published in the new book Dying to Win.

For Generational Dynamics, this correlation is a powerful piece of support for the theory of crisis wars and generational flow.

For public policy, this correlation can be used in profiling to relate different kinds of criminal behavior with country of origin of the perpetrator.

Is this correlation merely a coincidence? Some people will certainly argue that it is.

This discovery of the depth of this correlation is actually something of a surprise to me.

I've been aware for some time that there's some correlation, based on our experience with the insurgency in Iraq. News stories have consistently confirmed that the Iraqi suicide bombers were not Iraqis, but were mostly Saudis. This is consistent with Generational Dynamics because the last Saudi crisis war ended in 1925, while the last Iraqi crisis war was the Iran/Iraq war of the 1980s.

Still I hesitated to be certain that the correlation existed because of a theoretical objection in Generational Dynamics: We can predict the actions and behaviors of large masses of people, based on generational changes, but we can't predict the actions and behaviors of individuals or small groups of people.

This issue comes up most often in the case of politicians. People are forever asking me why I don't comment one way or the other on the policies of George Bush or groups of Senators, for example. My response is that we're headed for various financial and war crises that are already "in the cards," and there's nothing important going on in the world today that George Bush or any other politician can affect one way or the other. What's happening today depends on the attitudes of large masses of people in America, Europe, China, Muslim countries, and other countries around the world. Politics has nothing to do with it.

Well, if Generational Dynamics only predicts the attitudes and behaviors of large masses of people, how could there possibly be that it appears to predict the behaviors of individual terrorists?

Theoretical explanation

The answer to that puzzle is provided by examining Robert A. Pape's research on suicide bombers. His research is published in his recent book, Dying to Win : The Strategic Logic of Suicide Terrorism. I reviewed his research in an analysis that I posted a couple of weeks ago.

The idea is that every generation always contains a small percentage of angry, disaffected people. The difference is that such people have different choices available to them, depending on the generational era.

Some choices are always available: Sublimating that anger into a socially acceptable activity, such as art, writing, counseling, or a religious conversion. In an awakening era, like 1960s America or Iraq today, when there's a "generation gap" and a great deal of inter-generational political conflict, a young, angry person has the obvious choice of rioting in the streets against his parents' generation. Solitary suicide is also always available as a choice.

But in a generational crisis era, there's a special choice available that's not available in any other era: altruistic suicide. From the point of view of Generational Dynamics, crisis eras are unique in that a society values a human life much less than it values the security and survival of the society as a whole.

During non-crisis eras, individual human lives are considered important. An altruistic suicide is impossible during non-crisis eras because the great mass of people could never consider such a suicide to be selfless; in fact, the tendency would be to consider a person who commits suicide to have done it for selfish reasons, an unwillingness to face one's personal problems.

But during a crisis period, an altruistic suicide is indeed possible. The great mass of people consider are more willing to sacrifice one life for the good of the society, and even to consider such a person to be a hero.

And the deeper the society is into the crisis period, the more possible an altruistic suicide becomes. For Americans, an excellent example is D-Day in 1944, when tens of thousands of American forces poured onto the beaches of Normandy, where they were massively slaughtered by the enemy. Those men essentially committed altruistic suicide, and they're considered to be heroes, members of "the greatest generation," to this very day.

This ties into Robert Pape's work in Dying to Win. Pape found that, of the hundreds of suicide bombers he studied, they were all altruistic suicides. Since altruistic suicides can only occur during generational crisis periods, we have a solid theoretical explanation for why suicide bombers are overwhelming from societies in generational crisis periods.

This theoretical analysis has been confirmed by Pape's findings, and by the Somalia connection of the 7/21 bombers. If further research continues to confirm this analysis, it will be quite significant for both Generational Dynamics and public policy. (1-Aug-05) Permanent Link
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