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


Web Log - January, 2006


Muslim world boycotts Danish goods over offensive cartoons

This is a bizarre tale about how a small thing can lead to a major, real crisis.

Saudi Arabia has recalled its ambassador from Denmark, Libya closed its embassy in Copenhagen, and many clerics are calling for a worldwide Muslim boycott of Danish products, after Denmark's Prime Minister refused to apologize for cartoons depicting the Prophet Mohammed in a manner considered offensive to Muslims. Iran may join the boycott as well.

The 12 cartoons first appeared in Denmark’s Morgenavisen Jyllands-Posten daily in September. The scandal has continued to grow ever since.

Muslims consider any images of Mohammed to be considered blasphemous, but the published cartoons depicted Mohammed in a manner that Muslims consider to be extremely offensive. In one of them, Mohammed is wearing a turban shaped like a bomb with its fuse lit. In another, Mohammed is telling suicide bombers to slow down, saying, "Stop, stop, we're running out of virgins."

Morgenavisen Jyllands-Posten has refused to apologize, claiming freedom of speech. The Denmark government claims that it can't discipline the paper for the same reason -- freedom of speech.

The Norwegian paper Magazinet reprinted the cartoons, but Norway hopes to escape the same retribution, because the Royal Norwegian Embassy in Riyadh issued an expression of regret: “All people have the right to respect for their religion and the right to expect that neither their religion nor their religious affiliation will be subject to contempt. I understand that the caricatures of the Prophet Muhammad in the Norwegian magazine Magazinet are perceived as offensive and that they have caused a stir in Muslim communities. This incident is unfortunate and deplorable.”

It's possible to understand both sides of this disagreement. The Danes are perplexed about what they should do; it's as if the Muslim world was outraged at all of America because the Boston Globe had published something that Muslims consider blasphemous. However, Muslims claim that the Danes have pushed freedom of speech too far -- like crying "Fire!" in a crowded movie theatre -- by publishing cartoons that are so extremely offensive to Muslims. They point out that Western Christians would be similarly offended by cartoons of Jesus.

The disagreement may escalate still further. The EU Trade Commissioner Peter Mandelson has warned Saudi Arabia that would take legal action in the World Trade Organization (WTO), if the Saudi government supported a boycott of Danish goods.

Perhaps this disagreement will simply settle down. The only way I can see that happen is if the Danish government decides to issue some kind of apology, although an opinion poll showed that 79 percent of Danes think that the government should not issue an apology, and 62% say the newspaper should not apologize.

However, Morgenavisen Jyllands-Posten issued an apology on January 28, but it doesn't seem to be doing much good.

What this disagreement shows is how easily a war can start during a generational crisis period. This is a really silly squabble, and yet positions are very hard on both sides. If the same sort of thing happened between Japan and China (which it could), then a diplomatic squabble could rise to a boycott, then rise to a minor confrontation with weapons, to a larger confrontation with weapons, to a full-scale war. Stranger things have happened, and may happen again. (31-Jan-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Personal savings rate plummets to Great Depression levels

Ben Bernanke becomes Fed Chairman tomorrow, and faces exponentially growing debt levels

The Commerce Department reported Monday that Americans' personal savings fell to -0.5 percent last year, a negative value, meaning that Americans as a whole spent more than they earned last year.

This has happened only twice before in the last century -- 1932 and 1933 -- as the Great Depression was beginning.

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

This is consistent with the adjoining graphic, which I've posted before (in 2004). It shows the astronomically high level of public debt, exceeding even the level of the Great Depression, when people went into debt to avoid starvation and homelessness.

As I've been writing since 2002, America is entering a new 1930s-style Great Depression and, as I've said many times, both I and other analysts have computed, the "true value" or book value of the stock market today to be around Dow 4500, which means that the market is overvalued by more than a factor of 2, at about the level as just before the 1929 stock market crash.

The savings rate has been declining for decades.

In 1984, it was 10.8% of after-tax income; it decreased steadily, reaching +1.8% in 2004, and then fell to its negative value, -0.5%, in 2005.

A similar pattern has been occurring with trade deficits, which have also been increasing exponentially.

Those pundits who have been saying that the economy is "self-correcting" are simply wrong. The theory was that the dollar would weaken sufficiently that consumers would be forced to spend less.

What you're seeing is something that undermines the entire theory of demand economics. When people run out of money, they're supposed to spend less. But that's now what's been happening; thanks to the Fed's near-zero interest rate policy in the early 2000s, people have gone deeper and deeper into debt rather than spend less. They obtained credit through credit cards and by refinancing their homes in a real estate bubble.

That reasoning would have worked from the end of WW II through the 1970s, but then a major generational changed started happening, as the thrifty, risk-averse people who lived through and grew up during the Great Depression all disappeared (retired or died), and new generations of risk-seeking and irresponsible Baby Boomers and Generation-Xers took their place.

When I was growing up in the 1950s, my school teachers talked about the Great Depression all the time, because they had suffered through it. Those teachers must be spinning in their graves over the appalling things that are happening now, as a matter of course.

In the 1980s, the Republicans and the Democrats cooperated with each other to change the Social Security system to make it a sounder system. After that, they cooperated again to specify new rules to control the budget deficit. And in 1996, Democratic President Bill Clinton cooperated with the Republican congress to eliminate the welfare entitlement.

Such governmental cooperation causes political pain, but today that kind of political pain is impossible. Even at the personal level, it's easier to go into debt than to cut back on spending.

This is not just an American phenomenon; it's a worldwide phenomenon. Furthermore, these financial crises are generational, and occur in a regular pattern. They've occurred every 70-80 years since the 1600s: Tulipomania bubble (1637), South Sea Bubble (1721), French Monarchy bankruptcy (1789), Hamburg Crisis of 1857, and 1929 Wall Street crash. These bubbles and crashes always occur at exactly the time when the generation of people who grew up and lived through the previous bubble all disappear (retire or die), all at once. And it happens to every country in the worldwide economic system -- mostly Europe and North America.

However, this particular cycle has a twist, as revealed by another economic announcement that just came out: China's savings rate hit an all-time record high in 2004, just as America's has been plumetting.

Of course, China's savings rate has to be high. The Chinese people have to save a lot of money so that the government can afford to purchase American treasury bonds, so that America will have more money to purchase Chinese goods. In other words, China sends us money, we send the money back to China, and China sends us manufactured goods that people purchase with credit. And don't expect Europe to save us -- they're as bad off as we are.

Stephen S. Roach, the chief economist for Morgan Stanley, has called this the ambush waiting for Ben Bernanke, referring to Bush's appointee to replace Alan Greenspan at the Fed on February 1. Bernanke will have his academic skills tested in practice very quickly.

With debt growing exponentially, and with the stock market overpriced by a factor of more than two, the climate for a financial crisis is right. The crisis could occur tomorrow, next week, next month or next year, but economic indicators show that it has to come relatively soon. (31-Jan-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Bird flu: World holds breath for China and Vietnam Lunar New Year celebrations

If we get through the next month without a pandemic, we may be OK till next season.

It's the Year of the Dog, as the Chinese Lunar New Year launches four days of celebrations. And next week, Vietnam will begin its Lunar New Year festival of Tet.

Avian Influenza (AI) outbreaks in Vietnam in 2004 and 2005 <font size=-2>(Source:</font>
Avian Influenza (AI) outbreaks in Vietnam in 2004 and 2005 (Source:

Both of these celebrations involve massive increases in handling, transporting and slaughtering poultry. As the adjoining graphic shows, the number of bird flu cases in Vietnam spiked greatly during Tet celebrations in 2004 and 2005.

The United Nations and Vietnam have jointly launched a bird flu media campaign, hoping to reduce the prevalence of bird flu this year. Media campaigns have begun in other countries as well, in Asia and Europe.

The great fear is that the pathenogenic H5N1 bird flu virus will mutate in a form that passes easily from human to human, causing a bird flu pandemic which could kill many millions of people.

As we wrote about in January, 2005, the World Health Organization (WHO) feared that a human-to-human bird flu pandemic might start with last season's lunar new year (Tet) celebrations, when many people would be travelling, and more poultry would be transported, slaughtered and consumed.

Bird flu virus mutation is basically a numbers game. A human to human transmissible virus will be formed when somebody simultaneously gets the ordinary human flu and the pathogenic H5N1 bird flu at the same time. At that time, the genes from the two forms of the virus can recombine to form an H5N1 virus that can move easily from human to human.

It's the far greater numbers of recombination opportunities that make a pandemic increasingly likely. Since last year, pathenogenic H5N1 has spread throughout China, west through Asia, into Europe, and has become firmly established among birds in Turkey.

It's not known how far bird flu has spread in many parts of Europe, Africa and Asia. The reason is that there simply are no testing programs in many countries, and the presence of bird flu would not be detected.

Beyond that, there's reason to believe that many countries are refraining from reporting suspected cases, for fear of hurting the country's tourist trade. This is particular evident in the countries surrounding Turkey, which have mysteriously not detected any H5N1, even though it's spread across Turkey from east to west. There's also reason to believe that China is not reporting the full extent of the problem there.

Another debate concerns the question of whether a limited form of human-to-human transmission has already begun. This appears to be the case in Turkey, where the sequencing of the cases within families appears to indicate that some family members have gotten it from each other.

However, such limited human to human transmission requires physical contact, and so cannot spread very widely.

The really dangerous mutation would occur with an additional mutation that would permit human-to-human transmission through the air, through coughing and sneezing.

A reader who is an expert on genome science has written to me to say that he believes that a mutation that permits this kind of rapid human to human transmission will require a second mutation that reduces the virulence of the virus. I have no expertise to evaluate such statements, but if true it would indicate that a full-fledged pandemic would not be a deadly as feared.

At any rate, we are now entering the most dangerous time of the year, the time most likely for a human pandemic. The good news is that if we pass through the next few weeks without a pandemic, then we have a good shot of being safe until next season. (30-Jan-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Hamas victory throws Mideast 'peace process' into disarray and turmoil

What struck me most, seeing the cheering Hamas supporters on TV yesterday, was how young they are. I swear they looked like high school students, or maybe late teens. The median age in the Gaza Strip is 15.6!!! Compare that to 29 for Israel, 36 for the U.S., and 42 for Germany. When we talk about the Palestinians, we're talking about a society of children. That's not meant to be an insult -- it's a demographic fact.

And where do children get their news from? Well, here in America we know that it's almost all from MTV and from Comedy Channel's Daily Show with Jon Stewart. Try watching the Daily Show a few times, and then try to imagine how much you'd know about the world if that's all the news you ever heard. Well, I don't know what the Arabic version of the Daily Show is, but I'm pretty sure it paints a picture of a world run by irrelevant dinosaurs and also, I'd guess, a world in which Israelis and Americans and British are the idiots who are making life miserable for everyone else.

I heard on the BBC that not a single pundit or politician predicted this kind of result. Most predicted a narrow Fatah victory, but none foresaw the huge Hamas margin, gaining some 74 seats of a total of 132 in the Palestinian Parliament. This means that the "terrorist" organization Hamas is now in charge of the Palestinian government, and the "moderate" Fatah, led by Mahmoud Abbas, is pretty much wiped out.

So what happens now? President Bush dodged that question in a Thursday morning press conference. He was asked whether "Mideast peacemaking [is] dead with Hamas' big election victory." His answer: "Peace is never dead, because people want peace [and] democracy yields peace. And the best hope for peace in the Middle East is two democracies living side-by-side."

That's the silliest damn thing. The two-state plan is dead, and democracies have wars just as often as dictatorships do. Hitler was elected by a democracy. Or, if you dislike that example because the election might have been crooked, how about our own American Civil War? That war was triggered by the democratic election of Abraham Lincoln, and it was unbelievably bloody and violent war, spawned by our own (imperfect) democracy.

In fact, the dinosaurs are full of silly remarks. My favorite yesterday was by 69-year-old Palestinian Christian Hanna Siniora: "The Hamas victory in the Palestinian elections may be a blessing in disguise. Now that they are in power, Hamas will have to take responsibility for the future. They will have to become more moderate. Now they are part of the democratic game and they will have to play by the democratic rules." That's like saying that an earthquake is a blessing in disguise because it prepares the survivors for the next earthquake.

This statement is also quite ironic, because it brings the wishful thinking crowd full circle.

That's what they used to say about former Palestinian leader Yasser Arafat. After he signed the Oslo peace agreement with Israel in 1995 (and won a Nobel Peace Prize along the way), he was felt to have become a newly "moderate" leader of the Palestinians.

By the early 2002, he was back to being a terrorist, and Israel refused to negotiate with him -- because he was a terrorist, a crook and a liar. The Israeli and American view was that peace would come to the Mideast as soon as Arafat was out of the way.

It was right along this time that I made the prediction that has drawn the most "You're crazy, Xenakis!" remarks of all my predictions: I said that Arafat may be a terrorist, crook and liar, but he's the person holding the Palestinians back from war. I said that the disappearance of Arafat would be part of a generational change that would bring a major conflagration to the Mideast, probably within a couple of years. And now, on Thursday, we have an election that puts a terrorist organization in charge of the Palestinians. Former Israeli Prime Minister Benjamin Netanyahu describes the situation thus: "It's like having another Tehran, Iran, but this time on our doorstep."

So here we are, 14 months after Arafat's death, and everyone else's predictions keep getting proven wrong, and mine keep getting proven right. All those people who said "You're crazy, Xenakis!" are wrong, and I turn out to be right.

And not just on this issue. Whether it's about Darfur or about the economy or about Iraq or about China, I keep getting it right where others keep getting it wrong.

This is obviously something that bothers me a lot, since I do write about it from time to time, especially on a day like this, the day after the Hamas victory. Why am I so special? I'm certainly not the least bit psychic, and I certainly can't read people's minds as, for example, my bad luck with women repeatedly demonstrates.

The fact that everyone else's predictions are as often wrong as right has been well documented. An article in Tuesday's Wall Street Journal finds that economists predictions are dismally wrong, including predictions by government agencies and the Federal Reserve. (Regular readers will know that this doesn't surprise me, given how critical I am of the Fed.) And a new book by Prof. Philip Tetlock, Expert Political Judgment: How Good Is It? How Can We Know? shows, based on 20 years of research, shows that, without exception, media analysts and pundits are wrong more often than they're right. This is true even for experts and specialists, talking in their areas of expertise. The worst offenders are those who are trying to make political cases, whether Republic or Democrat, liberal or conservative.

Obviously Prof. Tetlock hasn't seen my web site. What's so different about me? For one thing, I've developed the Generational Dynamics forecasting methodology, which tells you what your final destination is, but not how you get there, or when. In early 2003, when I was developing the theory behind the Generational Dynamics forecasting technique, I began to be very careful with words to distinguish between "long-term forecasts," which are 100% certain, and "short-term forecasts," which are probabilistic. By using long-term predictions to "advise" short-term predictions, I can even get short-term predictions to be very accurate. I've posted many, many predictions since Spring 2003 on my web site, and not a single one has been wrong. Some have come true, and others are still pending, but not one has been proven wrong. If you want to know what's going on in the world, and where the world is going, the only place that you can find out is on my web site.

Furthermore, I try to be as transparent as possible. Every time I make a prediction, I give my reasoning in detail, rather than depending on my "gut." And I've written two books that explain the forecasting methodology in detail. I estimate, based on web logs, that I have several hundred regular readers, possibly more than a thousand, since I've done some limited advertising. Of course, I have no idea who you are, except for a few dozen who have written to me over the years.

So, for example, how come my predictions about the Mideast are always right, and everyone else's are usually wrong? That's easy. I know something that they don't know: That the region is headed for a massive genocidal crisis war between Arabs and Jews, with 100% certainty. That's because, as I've explained may times, Arabs and Jews are re-fighting the genocidal war of the 1940s, especially what occurred after Palestine was partitioned and the state of Israel was created.

So, since I KNOW that for a fact, I can predict with certainty, as I did in 2003, that the Mideast Roadmap for Peace would fail, with almost 100% certainty. Every step of the way in the last three years, I've been able to make the right prediction since I know, with certainty, that the region is headed for war.

That's why everyone else gets it wrong. If they're aware of my writings at all, they usually think, "Xenakis, you're crazy." They don't know that the region is headed for war, with absolute certainty. They think there's a chance to avoid war. If they love George Bush, they advocate something like Bush's "democracy brings peace" principle. If they hate George Bush, they advocate the opposite of whatever George Bush advocates. Both sides are wrong, because both of them believe that war can be avoided. (As I mentioned above, Tetlock's research found that the worst of the pundits were the ones with political points of view.)

The Outlook

But you, dear reader, can figure out what's going to happen next in the Mideast as well as I can.

Before you read any farther, take a minute or two and see if you can figure out the outlook in the Mideast. Remember that there's something that you KNOW: that the region is headed for a massive war, with absolute certainty. So, with that knowledge, what's coming next?

Thought about it? Here's my answer for a fairly likely scenario:

Hamas has a big problem right now: Money. The European Union and the U.S. contribute about $1 billion a year to the Palestinians; that money is the only glue holding the Palestinians together, if "holding together" can be used to describe the increasing chaos enveloping the Gaza Strip.

But the EU and US are not going to keep giving money to the Palestinians if Hamas is going to get it, since Hamas is committed to the destruction of Israel.

Hamas can't very well give up its charter to destroy Israel. Remember that Palestine is society of mostly children -- because the median age is 15. We're dealing with children here, and these children have elected a government of terrorists. These children will not be happy if they think that Hamas is going back on its election promises.

So how to get the money? That's the problem. In the end, it's always about money, isn't it? How is Hamas going to get that money?

Well really, I can only guess. Hamas will have to split itself into two parts in some way. It will put forth some kind of "kinder, gentler" Hamas as the Palestinians' government at the very top; these officials may even be puppets, but the important thing is that they'll say that they want peace with Israel.

Beneath that shell government, Hamas will continue to operate in the way that the children expect, with terrorist acts, and so forth.

That's one possible scenario. Another possible scenario is that Hamas will agree with the EU and US that money should go through non-governmental organizations, to make sure that Hamas won't get it. Of course, Hamas will be in control of these NGOs, but everyone can just keep quiet about this.

The point is that, no matter what the scenario, Hamas, Israel, the EU and the US will have to find some political formula to keep giving $1 billion to the Palestinians in such a way that the politicians can claim it's not going to terrorists.

But if a political accommodation is not found, and the $1 billion is cut off, then that war between Arabs and Jews will happen quite quickly.

So, in summary, the outlook is as follows: Find a political way to keep the money flowing in, and have war in the long run; or don't find a way, and have war in the short run.

It's impossible to predict which of these two major paths will be taken, since they're chaotic events. There is only one thing that's absolutely certain: The Mideast is headed for a major genocidal war between Arabs and Jews, and probably sooner rather than later. (27-Jan-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

China reports 2005 economy still overheated at 9.9% growth

Like a railroad train careening down the track out of control, China's economy grew at an unexpectedly high 9.9% last year.

Analysts expressed suspicion that the 9.9% is actually an understatement. "One could say that 9.9 percent is a very convenient number," he said. "It's not 10 percent. Ten percent might scare people, and might create more trade friction with the U.S."

You might think that such a high growth rate is a good thing, but the problem is that China's economy has had this kind of growth rate for over 20 years, and has become highly dependent on it. China has 100-150 million migrant workers, mostly peasants who can't make much money on the farm. They go to cities like Shangai to get whatever work they can, and send money back to their families. This works because of the overheated 10% growth rate, but whenever a recession occurs, these millions of migrant workers in the cities will be unable to find work, causing even more social instability.

The Chinese themselves are aware of this danger, and for several years they've been trying to slow the economy down to a "soft landing." It was just a couple of days ago that China's Prime Minister warned that the country was already becoming unstable, thanks to a "historic error" caused by corruption in local governments. A recession which caused massive unemployment might well be the trigger leading to a massive rebellion -- growing out of the tens of thousands of regional rebellions already occurring each year.

From the point of view of Generational Dynamics, China is experiencing a bubble economy similar in many ways to America's bubble economy in its "generational unraveling" era in the late 1990s.

There is a debate today whether Alan Greenspan did enough to try to prevent the 1990s bubble, but I've argued that the bubble was caused by a generational change and could not have been stopped, no matter what Greenspan and Fed did.

Similarly, China's attempt at a "soft landing" for its economy has been failing dramatically for several years, as it transitions from a "generational unraveling" to "generational crisis" era.

There are already a number of signs that China's bubble is bursting. The Shanghai real estate bubble has been bursting since March, with some properties falling in value by 50% since then.

And China is suffering overcapacity in cement, aluminum, textiles and other goods, and is also constructing too many factories, buildings and resorts. This has led to very low inflation in China, because the oversupply of these goods is pushing prices down.

As I've described before, China is becoming increasingly unstable and is approaching a massive civil war as its bubble economy unravels. America's economy is also in a precarious situation, because of the astronomically high and exponentially increasing public debt, and because of the vastly overpriced stock market.

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 financial crisis in either China or America or, for that matter, in Europe or Japan will cause a "domino effect" that will precipitate financial crises around the world, and trigger a civil war in China, which will lead to war crises around the world. Generational Dynamics predicts that we're at a unique time in history, 60 years after the end of World War II, and that we'll soon have a new "clash of civilizations" world war. (26-Jan-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

China Prime Minister warns that country is becoming unstable

Blaming local governments for making a "historic error," Chinese prime minister Wen Jiabao said that corrupt land grabs by local officials are "threatening social stability" and causing violent "mass incidents."

According to China's Ministry of Public Security, there were 87,000 mass incidents in China in 2005, up from 74,000 in 2004 and 58,000 in 2003. "Mass incidents" are "public order disturbances, obstructions of justice, gathering of mobs and stirring up of trouble."

If even one of these disturbances occurred in the U.S. or Europe it would be international news, so having tens of thousands of these in a year in China is mind-blowing. I've described some of these mass uprisings on this web site -- the massacre in Dongzhou,, the violent beating of Chinese democracy activist, and a riot where 50,000 workers clashed with police. These are only the tip of the iceberg.

As I've described before, China is becoming increasingly unstable and is approaching a massive civil war as its bubble economy unravels, along with the rigid social structure originally set up by Mao Zedong in the 1950s and 60s. Today, there are close to 150 million migrant workers (20% of the workforce), mostly peasants who have lost their farms to corrupt land deals by CCP (Chinese Communist Party) officials, who take any jobs they can find in the cities and send money back to their families in vast poverty-stricken rural areas.

What's different this time is that China is actually admitting that the society is becoming unstable. "Some locales are unlawfully occupying farmers' land and not offering reasonable economic compensation and arrangements for livelihoods, and this is sparking mass incidents in the countryside," said Wen. "We absolutely can't commit a historic error over land problems."

The "historic error" refers to the similar corruption that preceded China's previous huge rebellions -- the Taiping Rebellion (1852-64) and Communist Revolution (1934-49) -- each of which consumed the entire country and killed tens of millions of people. Wen is saying that the corrupt land grabs are creating the conditions will inevitably lead to a new nationwide rebellion, perhaps killing millions of people.

Generational Dynamics predicts that China is very close to chaos, and that there are three possible triggers of this chaos:

The rapid spread of bird flu among birds in China has created an even more dangerous situation, as China has mobilized its 2.3 million man army to "fight bird flu."

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 few years, probably sooner rather than later. (24-Jan-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Wall Street awaits Monday trading after Friday's "blood bath" on earnings

Investors have been getting measureably more risk-averse since October, with the result that nervousness is exceptionally high as Monday approaches.

Traders are calling Friday, the worst trading day in 3 years, a "blood bath," after the DJIA fell three out of last week's four trading days:

        Date            DJIA      (Change)
        --------------  ------    ---------
	Tue 2006-01-17  10896.32  ( -0.58%)
	Wed 2006-01-18  10854.86  ( -0.38%)
	Thu 2006-01-19  10880.71  ( +0.24%)
	Fri 2006-01-20  10667.39  ( -1.96%)

For the week, the DJIA fell 2.7%, the S&P lost 2%, and the Nasdaq ended 3% lower. All the gains of 2006 were wiped out this week.

Giggling giddiness at Dow 11,000 last week

Things were quite different last week, when giddy, giggling investors and analysts were popping champagne corks and celebrating the two days that the DJIA exceeded 11,000 for the first time since June, 2001.

According to one analyst commenting last week, it's about time. Hitting 11,000 merely meant the Dow was "catching up with the other averages," said Alexander Paris, economist and market analyst for Chicago-based Barrington Research. "It's just a matter of the market evening itself out," he said. "The Dow was the only average in 2005 that didn't go up."

A search on Google news revealed no quotes or opinions from Alexander Paris on this week's market activity.

Last week's giddiness also came through in an article that appeared in Time Magazine online:

"Quibble all you want about things like the deficit and inverted yield curve. In general, the fundamentals look pretty good. Arguably, the only thing missing from this market has been a healthier psychology. Which is understandable, given how long stocks have suffered. But just maybe a round number like Dow 11,000 will finally get investors to think about the upside of stocks again. If so, there are trillions of dollars in money market accounts, trillions more possibly looking to get out of real estate, and another trillion-plus of buying power collecting dust at private equity firms—much of which could move into the stock market and help topple the old record sooner rather than later.

The article says that "GDP growth is on track, inflation is tame, corporate earnings are good, dividends are up and values have become attractive," and quotes hedge fund mogul Leon Cooperman as saying that valuations [price/earnings ratios] "are reasonable."

However, a search on Google news revealed no quotes or opinions from Leon Cooperman on this week's earnings reports.

The psychological framework for investors and analysts was set early in the week when the Tokyo Stock Exchange's Nikkei index fell 6.22% in three days, resulting in worldwide shock waves. One analyst told the New York Times that, "This thing has taken on greed, panic and fear."

Earnings disappointments

Actually, it's more than psychology, and Time Magazine's claim that "the fundamentals are good" is simply not true.

An AP analysis this weekend shows that we've been seeing "a recent streak of earnings disappointments." It adds, "That's created intense concern that other companies' fourth-quarter results will likewise fall short. The expectation of those disappointments fueled the selloff, with investors dumping stocks ahead of earnings reports in hopes of softening the blow."

This was fully to be expected, and there's worse to come.

Earnings have been exceptionally high for ten years by historical standards. Analysis shows that corporate earnings grow at an average of 11% per year, and that this has been true for close to a century. In fact, you can pick any 20-year period, and earnings have averaged 11% in that 20 year period. That means that earnings will average 11% during the 20-year period from 1995 to 2014.

Mean Reversion

But since 1995, corporate earnings have averaged 18% per year.

Now apparently a wide variety of investors, analysts and financial managers -- people who are really supposed to know better because it's their job to know better -- have become so giddy that they believe that the laws of nature have been revoked, just for them.

Apparently many airheads in the Wall Street and investment community believe that if earnings have been growing at 18% for the last ten years, then they'll continue to grow at 18% a year.

But that's not what's going to happen. The applicable principle is a mathematical term called "mean reversion": When the value of a variable stays above average for a long time, then it has to fall below average for just as long at time in order to maintain the historical average. In other words, the variable falls low enough so that the variable reverts to its historical "mean" or average.

Applying mean reversion to corporate earnings: The historical average growth is 11%; but growth since 1995 has been 18%; therefore, the average for the next ten years will be 4%, in order to revert the average to 11% for the entire period.

This reversion of earnings growth must happen, and might have begun at any time, and in fact I thought it might start happening in 2005. But earnings growth remained high in 2005.

Now, the first earnings forecasts for 2006 appear to indicate that mean reversion of earnings growth is finally starting to be felt. If next week's earnings reports show that to be the case, then the effect on the stock market and the economy is likely to be dramatic.

Something happened last October

Long-time readers of this web site will recall that I wrote an article that appeared on August 11 of last year, I wrote about a "new mystery" involving the following graph:

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)

This graph showed the S&P 500 P/E ratio index for the period ending August 5, and it showed something very strange: The P/E ratio had remained constant at around 20 for almost a year.

In that article, I speculated that the airhead investors, analysts and financial managers on Wall Street were all making decisions based on exactly the same formula that they shared with one another over water coolers and on barstools. I speculated that the formula was based on something called the "Fed Model," a fallacious but widely used investment formula derived from a single paragraph buried deep in a 1997 Federal Reserve report. Since investors all used the same formula, the P/E ratios were remaining constant.

But something happened last September and October to cause investors to become more cautious.

As I wrote in October, investors had suddenly pushed the P/E ratio from 20 down to the 18-19 range, indicating that they were unwilling to pay as much for the stock of companies with the same earnings as before. Thus, they were unwilling to take as much risk as before.

Now, several months later, let's see how the graph as changed:

S&P 500 Price/Earnings ratio and S&P 500-stock Index as of 20-Jan-2006. <font size=-2>(Source: MarketGauge ® by DataView, LLC)</font>
S&P 500 Price/Earnings ratio and S&P 500-stock Index as of 20-Jan-2006. (Source: MarketGauge ® by DataView, LLC)

As you can see, the P/E ratio index has been steady since October, but at the lower 18-19 value. This indicates that the great mass of airhead investors and analysts had changed their formulas to reflect a desire to demand higher earnings for a given stock price. This is one way of measuring investors' "risk averseness"; if they're demanding greater earnings for a given stock price, then they're willing to take less risk, and they're becoming increasingly risk-averse.

Actually, if you look at the above graph, you'll see that there was a sharp fall in the P/E ratio index early in 2004, and that it's been falling steadily ever since.

Greenspan's warning

What we're seeing is actually something that Fed Chairman Alan Greenspan warned us about last August. In a speech to central bankers,

"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."

We've been going through a "protracted period of low risk premiums," based on "abundant liquidity" resulting from low interest rates and a bubble investor mentality. But now we have "increase investor caution," or increased risk aversion. The result? "[H]istory has not dealt kindly with the aftermath of protracted periods of low risk premiums."

The Outlook

So, we're now in a climate of increasing risk-aversion. What happens in that climate if earnings start to fall?

The answer is that we'll begin to see "mean reversion" in its most vicious form, since mean reversion also applies to the P/E index itself. The long term average for the P/E index in the above graphs is around 14. It's been well above 14 for over ten years now, and in fact it's reached as high as the 60s for a while.

In order to return to the average of 14, it will have to compensate by falling well below 10. In fact, it's been down as low as 5 many times in the last century, so that wouldn't be so unusual.

But at a time when earnings are falling, a P/E ratio index of 5 means a DJIA even below the 3,000-4,000 range that I've been predicting on this web site since 2002.

If you'd like to see what happened in the Great Depression, take a look at the analysis of the "Great Depression and the Dow Jones Industrial Average," that I just posted. What you'll see there is how "mean reversion" works at its most vicious: The DJIA actually fell 90% between 1929 and 1932. If the same thing happens this time, and it might, then the market will fall to Dow 1100 by 2009.

The only remaining question is when this precipitous fall will begin. While it's impossible to predict when a panic will occur, we've described a number of current factors that indicate that the time is right, right now, for a panic.

The things to watch for are continued bad earnings news and increased volatility. Both of these occurred last week. If they continue to occur, they'll indicate that a panic may occur very soon. (22-Jan-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Tokyo stock exchange suspends trading to stem heavy selling of shares

The Nikkei index fell 3.94% on Wednesday, not enough to be called a "panic," but enough to raise concerns about a broader selloff.

Stocks fell for the third straight day, triggered by an investigation of a high-flying Japanese internet portal, Livedoor Co.

The Nikkei index fell 3.94% on Wednesday, and 6.22% for the week. Usually the term "panic" is reserved for selloffs of 10% or more in a short period. Because of the high selling volume, the Tokyo Stock Exchange (TSE) was forced to suspend trading and shut down early, for the first time in its history.

The concern is that the selloff will continue when the New York Stock Exchange opens this morning at 9:30 am.

As I've discussed many times, both I and other analysts have computed that the "true value" or book value of the stock market today to be around Dow 4500, which means that the market is overvalued by a factor of more than two -- at about the same level as just before the 1929 stock market crash.

The situation is complicated by two additional factors:

Investors are very nervous these days, because the stock market is so far overpriced. However, there hasn't been any real sign of panic until the TSE selloff today, and even that sign was muted. If anything serious is going to happen, it will probably happen in the next couple of weeks; otherwise, if things settle down again, then we may have to wait until the next crisis raises concerns again.

Since 2002, Generational Dynamics has been predicting that we're entering a new 1930s style Great Depression with the stock market falling to the Dow 3000 to 4000 range, probably by the 2006-2007 time frame. At this point I see no reason to change that prediction. (18-Jan-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Europe resigns itself to a nuclear Iran

Defiant Iran President Mahmoud Ahmadinejad continues to lead Iran to be the regional superpower, as he incites regional antagonism to Israel and insists on developing nuclear material.

Early this week, Iran broke the seals on its once-secret nuclear facility at Natanz, after a two-year voluntary moratorium on developing nuclear material, and restarted its nuclear fuel enrichment program.

This situation represents a significant political failure for Europe and the UN, and an equally significant vindication of American policy. Following the extremely bitter split between Europe and America over the Iraq war, there was a unanimous desire to handle the Iran problem in unified manner. Thus, America left it to the EU3 -- Britain, France and Germany -- to negotiate with Iran to resolve the nuclear issue.

The complete failure of the EU3 in those negotiations has sent shock waves through Europe, which now faces the possibility of a hostile nuclear superpower on its doorstep. Thus, Europe now has to consider a series of disaster scenarios for international crisis. The gist of these scenarios is that the Iran situation is referred to the UN security council. The various ministers at the Security Council then bloviate for a few days and either do nothing because Russia and/or China wil block any economic sanctions against Iran, or else some economic sanctions are imposed, but they really do nothing to resolve the situation, especially because Iran is rolling in money from oil.

On Sunday, Iran said that the resumption of nuclear research was "irreversible," so only the giddiest politician could possibly believe that anything short of military action will stop Iran from developing nuclear weapons.

Iran says that it wants nuclear development only for peaceful purposes -- to build nuclear power plants -- but many in the international community doubt this since Iran's huge reserves of oil mean that Iran doesn't particularly need nuclear power. Furthermore, Iran kept it's nuclear development project secret for almost 20 years, before exiled dissidents exposed it in 2002.

In fact, Mohamed ElBaradei, head of the U.N. International Atomic Energy Agency (IAEA), doesn't believe Iran either. On Sunday he said that he cannot confirm the peaceful nature of Iran's nuclear program. He added: "And if they have the nuclear material and they have a parallel weaponization program along the way, they are really not very far -- a few months -- from a weapon."

Thus, we see yet another unstoppable confrontation occurring on the world stage, to add to the mounting confrontation between China and Taiwan, and North Korea's own inexorable nuclear weapons program.

President Mahmoud Ahmadinejad added fuel to the fire this week by announcing a plan to host a "holocaust conference": A conference to look at "scientific evidence" and determine whether or not the holocaust was "a myth."

On the Sunday morning talk shows, American lawmakers took time off from calling each other names to appear to unite on a policy for Iran.

Moderate Republican Senator John McCain said, "There's only one thing worse than the United States exercising the military option; that is a nuclear-armed Iran. The military option is the last option but cannot be taken off of the table."

Democratic Senator Dianne Feinstein agreed with McCain that the military option must remain on the table. "Iran has much more opportunity to create devastation in the Middle East than Iraq at this time," she said. "I think it's a very serious threat."

One after another, Republicans and Democrats said the same thing -- Iran is an enormously dangerous international threat, and must be stopped by diplomatic means or, failing that, military action cannot be foreclosed.

It's great to see this love-in between Republicans and Democrats. We haven't seen anything as heartwarming as this since Republicans and Democrats all agreed that we should go ahead with the invasion of Iraq.

It's well to think of this when we see someone like Congressmen John Murtha make an outlandish claim (see previous item, below) that "mounting pressure from constituents in this election year will force Congress" to withdraw from Iraq this year. No such pressure will occur, even in this election year.

America is now in a "generational crisis" period, a time of increasing willingness to use confrontation and retribution for problems, rather than compromise and containment. The same is true for Europe and Israel.

There seems to be no turning back now. Iran will not back down from nuclear development. Period. America and Israel will not back down from a willingness to use the military option. What France and Germany will do is anyone's guess. So it seems that a military strike on Iran will occur.

This appears to be President Mahmoud Ahmadinejad's plan, as I've previously discussed. Ahmadinejad seems to me to be following this plan:

This vision of a future great Iran is exactly the kind of plan that makes sense for a youthful, vibrant leader of Iran during its own generational awakening period.

From the point of view of Generational Dynamics, there will be a major new genocidal Arab - Israeli war, refighting the genocidal wars of the late 1940s. Generational Dynamics also predicts that we're headed for a new "clash of civilizations" world war. As I've said many times, Generational Dynamics tells us what our destination is, but now how we'll get there. We can only look at day-to-day news stories to help us guess exactly what that route will be.

Since the election of Ahmadinejad, we see a new possible scenario emerging. In this scenario, Iran plays a key catalyst role in bringing about the inevitable regional war in the Mideast. Furthermore, we can easily imagine a alliance between Iran and China, linking them together in a new plan to emerge with China the major superpower in the Pacific and Iran the major superpower in the Mideast.

It's a frightening plan, and right now it's hard to see what can be done to stop it. (16-Jan-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Congressman John Murtha predicts quick American withdrawal from Iraq

Speaking in a "60 Minutes" interview on Sunday, the 73-year-old Pennsylvania Democrat, a decorated Vietnam war veteran, said that troops will be withdrawn from Iraq sooner than we think.

He said: "Our troops have become the primary target of the insurgency. They are united against U.S. forces, and we have become a catalyst for violence. My plan calls for an immediate redeployment of U.S. troops consistent with the safety of U.S. forces."

In the interview, he said that mounting pressure from constituents in this election year will force Congress to pass his withdrawal plan, or something similar to bring troops home.

This interview is worth reading because it's a perfect example of living in the 60s and 70s.

Regular readers of this web site know that since 2002 we've been predicting that there would be no significant antiwar movement. Every time something spurts up, it dies quickly.

For example, in August pundits were predicting a massive resurgence of the antiwar movement, thanks to Cindy Sheehan. Today, Cindy Sheehan is almost gone from public view.

Now Murtha is poking his head up again, claiming that "mounting pressure from constituents in this election year will force Congress" to pass a withdrawal plan.

Why don't these people ever learn? Every claim of this sort for years has turned out to be completely wrong.

And the clearest indication is that there are no college students demonstrating for a withdrawal.

Although Murtha has not previously been an antiwar activist, he's now joining other aging antiwar activists who may recall that in the 1960s and 1970s, the antiwar movement was led by college students, not by old men and women. That's because America was in a "generational awakening" period in the 1960s-70s. The "baby boomer" generation attending college at that time pursued the antiwar movement, the women's lib movement, the anti-racism movement, the environmental movement, and so forth.

Today, it's that same "baby boomer" generation that's trying to stir up an antiwar movement, but now they're old men and women, and as far as college students are concerned, they're like dinosaurs fighting each other, and they really don't care which dinosaur wins.

Thus, as we've said repeatedly, Generational Dynamics predicts that there will be no significant antiwar movement, even in this election year. (16-Jan-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Human bird flu becomes widespread and firmly established in Turkey

With 100+ suspected and confirmed human cases, and thousands of dead birds across the country, the United Nations Food and Agriculture Organization (FAO) has issued a press release warning that bird flu "could become endemic" to Turkey, and could threaten neighboring countries. FAO is warning these countries, including Armenia, Azerbaijan, Georgia, Iraq, Iran and Syria, to be on high alert.

Human H5N1 in Turkey. For each province, the number above the line is confirmed cases of H5N1 in humans, and below the line is the number of suspected cases awaiting tests. <font size=-2>(Source:</font>
Human H5N1 in Turkey. For each province, the number above the line is confirmed cases of H5N1 in humans, and below the line is the number of suspected cases awaiting tests. (Source:

As the adjoining map shows, human bird flu has become widespread across Turkey. It is believed that all the cases came from contact with infected birds, especially in the case of children who play with these birds. It is not believed that any of the cases involve human to human transmission of the virus.

The rapid spread in Turkey of bird flu in birds and now humans has been a surprise to many officials. It now appears to be most likely that bird flu has been spreading among birds in Turkey since October, but hasn't been reported. Discovering bird flu in birds requires a nationwide testing program, something that few countries are doing yet. Thus, when the virus spreads to humans, it's an unexpected surprise. Many experts suspect that bird flu has spread to birds in countries in Africa, without being reported yet.

The situation in Turkey has alarmed officials in countries from Greece to Russia, who are taking additional precautions to prevent the disease from spreading beyond Turkey's borders. One Russian legislator, known for his flamboyance, told a parliament session that Russia should become a no-fly zone for migratory birds from Turkey. “We must force the government to stop the bird migration,” he said. “We must shoot all birds, field all our men and troops ... and force migratory birds to stay where they are.”

All joking aside, we're now entering the most dangerous period of the year for the potential mutation of the highly pathenogenic H5N1 virus to a human to human transmissible form, for reasons that I've previously discussed. This would cause a worldwide pandemic.

Experts are encouraging people to prepare for an H5N1 pandemic by stocking up on food and water and currency and batteries for the entire household to live on for 2-3 months. This may cost a thousand dollars per person, but it's not wasted money since you can always eat the food later if no emergency occurs. Get canned or dried food that can last a long time in storage, and get a large container for storing water. Keep in mind that stored water becomes impure with time, so you'll also need some purifying tablets or bleach to kill bacteria in the water when the time comes. Finally, get whatever medicines you'll need to take care of yourself and your family for a long period of time. (12-Jan-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Iran appears to be positioning itself as a post-war superpower

Iran restarts its nuclear enrichment program while calling for Israel's removal.

Mahmoud Ahmadinejad <font size=-2>(Source:</font>
Mahmoud Ahmadinejad (Source:

Last October, when Iran's new President, Mahmoud Ahmadinejad, spoke to students at a conference, "The World Without Zionism," he called for Israel to be "wiped off the map," and called for a new wave of Palestinian attacks to "wipe off this stigma from the face of the Islamic world."

Ahmadinejad's words shocked the world, including France and Russia. Journalists scrambled to try to explain it.

"I think that it's due to Ahmadinejad's naïveté," said one analyst, referring to the short time he'd been President. Others explained that similar attacks on Israel are common throughout the Muslim world, and the only difference with Ahmadinejad is that he forgot that he was a head of state, and so people actually cared what he said.

It was easy to excuse Ahmadinejad in that way, since it seemed a reasonable explanation.

But since then Ahmadinejad has made a series of statements about Israel that have continued to outrage almost everyone outside the Muslim world. In these statements, Ahmadinejad said that Israel should be pushed into the sea, that the Holocaust never happened, and that the entire state of Israel should be moved to Europe or Alaska.

It's no longer possible to assume that these are just naïve statements of a new President.

Nuclear brinkmanship

However, this was all just words until Tuesday, when Iran restarted its nuclear enrichment program. Iran claims that the program is for peaceful energy development, and peaceful nuclear energy development is very popular with the Iranian people. But the nuclear fuel is dual-purpose, usable for both electric power generation and nuclear weapons.

It's hard to overestimate the effect this has had. Incredibly, Iran has actually united countries as ideologically different as America, France, Germany, Russia, the UN and the EU -- all opposed to Iran's nuclear plans, and threatening a "serious response" if Iran took the steps it finally took yesterday.

By "serious response," these governments mean referring the situation to the UN Security Council, where sanctions will be imposed on Iran, provided that China doesn't veto the sanctions, which it will. And what would the sanctions be, anyway? Iran supplies a great deal of oil to the world, and if the "sanction" were to forbid Iran to sell oil, then the price of oil would go up even higher. So the threat to the refer the situation appears to be an empty threat.

There's a very great deal at stake. If Iran continues with its nuclear program and builds nuclear weapons, then the entire region -- the Mideast, Europe and Western Asia -- will be threatened.

This brings us to the other possible "serious response": There have been numerous rumors and leaks about plans to bomb Iran's nuclear facilities.

Israel has been openly hinting at bombing Iran's nuclear facilities by March, 2006, for several months. Israel previously bombed Iraq's nuclear facilities -- in 1981, when Iraq was developing nuclear weapons at Osirak.

Even more, one lengthy analysis by the Canadian thinktank Global Research, predicts a massive "shock and awe" bombing campaign, conducted by the US, Israel and Turkey, which they say is being planned for Iran's nuclear facilities. According to the analysis, which no one has confirmed, the Europeans and even some Muslim countries are in accord with the plan.

Iran is certainly aware of all these threats, but is going ahead with the nuclear program anyway.

"The policy of Iran is completely defensive, but if we are attacked, the answer of the armed forces will be swift, firm and destructive," says Mostafa Mohammad Najjar, Iranian defence minister.

What is Iran up to?

The fact is that Iran, and especially President Ahmadinejad, have been acting as provocatively and even offensively as possible. The threat to "wipe Israel off the map" may or may not have been a faux pax, but there's no doubt at all the subsequent statements in a similar vein were no accident, and were done on purpose. But for what purpose?

And are those statements related to the nuclear development plans?

The following possible explanation is speculative. It certainly is not a prediction, but is consistent with Iran's recent behavior.

From the point of view of Generational Dynamics, Iran is in a "different place" then the Western nations that it's currently confronting.

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

Iran is entering a "generational awakening" period, just as America was in the 1960s. Iran today is one generation past the genocidal Iran/Iraq war of the 1980s, just as America in the 1960s was one generation after World War II.

Like President John F. Kennedy, elected in 1960, we can see the young, charismatic Mahmoud Ahmadinejad in a position to change Iran's direction, as the country enters its generational awakening.

By contrast, America, Europe, and the West are all in a "generational crisis" period, increasing confrontation and willing to fight, rather than compromise to solve problems.

There are many differences between countries in awakening versus crisis eras, as has been shown throughout history in many countries. When a country goes to war during a generational crisis period (like World War II and the Civil War for America), the war is likely to be extremely violent, bloody and genocidal, resulting in massive historical changes.

When a country goes to war during an awakening era, it's much more careful and canny, willing to win by deception rather than by genocidal fighting. That's where Iran is today.

So the speculative scenario is this:

This scenario may seem farfetched, but when you think about it, it's not much more farfetched than what's actually going on. Ahmadinejad seems to be doing everything he can to provoke a bombing campaign against Iran, and such a bombing campaign will surely come. Ahmadinejad will certainly not just still and allow Iran to be bombed without some kind of retaliation, and the scenario described above is one of the few that appears to be consistent with everything that's going on. (11-Jan-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Young July 7 London subway bomber was a wealthy man

Scotland Yard was shocked to find suicide bomber Shehzad Tanweer left behind a bank account containing £121,000 (US $214,315).

Suicide bomber Shehzad Tanweer <font size=-2>(Source: The Sun)</font>
Suicide bomber Shehzad Tanweer (Source: The Sun)

On July 7 of last year, Tanweer was one of the four London subway bombers, killing 56 people and wounding over 700.

They were all native-born young men whose parents had emigrated from Pakistan. Even their own parents and neighbors were shocked by what they did. Tanweer was a 22-year-old cricket lover who worked in a fast-food fish and chip shop owned by his parents.

Tanweer's father, Mohammed Mumtaz Tanweer, spoke out for the first time last year at his son's funeral. "All the bombings and killings were awful. Only the group of four [bombers] or God alone knows why they carried out this terrible act." He added: "As far as I can understand, my son was more British in his orientation than anything else. He has planned his career in sport. Even on the night before he died, he was playing cricket."

It's not known how Tanweer obtained this money. One possibility is that Tanweer

Tanweer's fortune is a mystery to Scotland Yard, but only one of several mysteries about the 7/7 subway bombings that remain unsolved, including the question of who masterminded the attack.

From the point of view of Generational Dynamics, the July 7 London subway bombings have exposed new generational patterns that explain why suicide bombers do what they do.

Generational Dynamics cannot predict the attitudes and behaviors of any individual, since each individual is free to do what he or she wants. But we're seeing that suicide bombers only come from societies that have entered generational crisis periods, and not before. This indicates that the generational crisis period changes society so that it makes the creation of suicide bombers possible.

Further findings, obtained by combining Generational Dynamics research with Robert Pape's study of suicide bombers, published in the new book Dying to Win, we find that suicide bombers justify their terrorist acts as "altruistic suicide." Pape found that suicide bombers most likely come from countries occupied by another country, and his research shows that they come overwhelming from countries that have passed through a generational crisis era without having a crisis war. In these countries, the parents have accepted the occupation, albeit bitterly and reluctantly. But their impatient children take it upon themselves to free their parents' generation from this occupation by this unique form of altruistic suicide. (9-Jan-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Ariel Sharon nears death as his political career ends

Now both Ariel Sharon and Yasser Arafat are gone, and the Mideast descends into chaos.

Several years ago, I wrote that Generational Analysis predicts that the Mideast peace plan of side-by-side Jewish and Palestinian states would fail, with almost mathematical certainty. I added the following about Israeli Prime Minister Ariel Sharon and Palestinian Authority President Yassir Arafat:

"These two men hate each other, but they're the ones cooperating with each other (consciously or not) to prevent a major Mideast conflagration. Both of them remember the [genocidal Arab - Jewish] wars of the 1940s, and neither of them wants to see anything like that happen again. And it won't happen again, as long as both of these men are in charge.

The disappearance of these two men will be part of an overall generational change in the Mideast that will lead to a major conflagration within a few years. It's possible that the disappearance of Arafat alone will trigger a war, just as the election of Lincoln ignited the American Civil War. (It's currently American policy to get rid of Arafat. My response is this: Be careful what you wish for.)"

It's now been a little more than a year since Arafat died, and hardly a day goes by that the violence and chaos doesn't get worse.

Indeed, things are going from bad to worse:

These specific incidents could not have been predicted by Generational Dynamics, but the failure of the Mideast peace plan and the inevitable drift to a major regional war is an easy prediction that can be made by applying the principles of Generational Dynamics. I'm not a psychic and don't have any special power, and yet I got this prediction right, and in fact anyone could have applied the same principles and reached the same conclusions.

It was a year ago at this time that I had discussions, in person and through e-mail, with several people who essentially told me I was nuts. With Arafat gone, they told me, the Palestinians would get increasingly peaceful. My explanations of the generational changes that brought the increasingly militant "young guard" into power had no effect on these people, who evidently thought they were hearing the words of a raving maniac. And yet, here we are, and my predictions have come true. In fact, every prediction made on this web site in the last three years has either come true or is coming true; not a single one has been proven wrong. It's not magic. It's all done by straightforward application of simple principles of Generational Dynamics that are clearly explained on this web site.

So yesterday the news was that Ariel Sharon may be near death after suffering a massive stroke. We can expect the disappearance of Sharon from Israeli politics to have the same kind of effect that the disappearance of Arafat had on Palestine. Not that Israel will descend into anarchy controlled by lawless militias, but that the Israeli government will descend into dysfunctional political anarchy, like Palestine, Europe and America.

This is a theme that I've discussing frequently lately. In country after country that fought in World War II, as the generation of leaders who grew up during that war are all disappearing (retiring or dying) all at once, each country is becoming politically paralyzed.

Israel has been one of the few countries left that could actually accomplish something (withdraw from Gaza, build the barrier around Israel), as long as Ariel Sharon, born in 1928, was in charge.

There is no one in Israel who can replace Sharon. Whether you consider him a hero or a terrorist, from the point of view of Generational Dynamics there is no doubt at all that he was pursuing an aggressive policy to make Israel safe, with or without a Palestinian state. Without Sharon, all of those policies will be frozen in place, or will continue on "cruise control" until they collapse.

Let's take one example of how they might collapse, by returning to one of the items listed above, that the militia group Hizbullah will be stepping up its terrorist attacks on Israel this year. According to the analysis by Israeli Military Intelligence, Hizbullah Chief Hasan Nasrallah plans a 'controlled escalation' in 2006, and he sees the northern front as a controlled front in which Israel will not 'go mad.'

This kind of "controlled escalation" is something that Sharon could handle in a controlled way himself. He lived through the genocidal Arab-Jewish wars of the late 1940s, and developed the wisdom and skill to respond to an escalation without triggering a new war like the one in the 1940s. But the people who will replace him won't have those skills, and will make heavy-handed responses that cause much greater escalations than Nasrallah had contemplated. Once the right kind of miscalculation occurs on either side, a small escalation can quickly escalate into all out war.

From the point of view of Generational Dynamics, nothing has changed. The Mideast is headed for a new, genocidal war between Arabs and Jews, probably sooner rather than later. This war will draw in countries from the entire region, as well as Europe and America, leading to a "clash of civilizations" world war. The incapacitation of Ariel Sharon gives us some information about how the Generational Dynamics prediction will come about. (5-Jan-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Kyoto protocol is evidently dead as European countries fail to comply

Among the EU countries, only UK and Sweden are on target to meet requirements, according to a study by a UK-based environmental think-tank.

According to the Institute for Public Policy Research (IPPR), all of the 13 other EU countries are either coming no closer to their targets, or are actually slipping farther behind by increasing, rather than reducing, their carbon dioxide emissions.

In fact, Britain itself has recently been increasing its carbon dioxide emissions, but is still on target because of a quirk in the way the treaty was set up, according to the BBC World Service: It's based on 1990 carbon dioxide emission levels, and Britain decreased its emissions in the early 1990s when it made a major switch from using coal to using gas in producing energy. However, since that switch, emissions have been increasing.

The irony about this is that United States has been repeatedly condemned by countries around the world, including the EU countries, for refusing to sign the Kyoto treaty. (Among the major developed countries, only America and Australia have failed to sign.)

The drama was really great at an international meeting early in December, when America refused to even participate in meetings about signing the treaty, and was skewered by country after country, including most EU countries.

Adoption of the Kyoto protocol has been fraught with problems. In mid-December, New Zealand scrapped the protocol as unworkable. Interestingly, about half of its greenhouse gases come from the methane and carbon-dioxide emissions generated by more than 50 million sheep and cattle.

The Kyoto protocol treaty has been a cynical political joke. Russia signed the protocol in 2004, but only because Russia stands to make billions of dollars from the treaty. Once again, this is because of the same quirk in the treaty, because Russian industries have been converting from coal to oil.

China and India also signed the treaty. They produce enormous amounts of pollution, but they're excused from the treaty requirements because they're "developing countries."

And so it goes. Another ridiculous display by politicians around the world.

Indeed, the Kyoto protocol requirements could never have been met. Generational Dynamics shows that energy usage grows exponentially over time, and it's impossible to stop with a tax. Only new technologies will solve the problem. Politics will have no effect whatsoever.

It reminds me of the G-8 meeting last June, where the "richest" countries of the world vowed to cure poverty in Africa during the next decade. But the sheer size of Africa makes that impossible, as I explained at length at the time, and the politicians know it. But they all patted themselves on the back for making promises that they knew could not be fulfilled.

Or, how about the genocidal war in Darfur, Sudan? From the point of view of Generational Dynamics, it was clearly a genocidal crisis war, based on fault lines defined by race, skin color, religion and ethnicity. When the news broke last year in June, 2004, I predicted that the UN would fail to stop the war before it runs its course. This kind of genocidal crisis war is a force of nature, and that the UN can no more stop it than they can stop a typhoon.

As I predicted, the United Nations did absolutely nothing to stop the genocide. but the U.N. solved its political problem a year ago by declaring that the Darfur was was "not genocide," despite the mass murders and rapes and forced relocation of millions of people. It was a sickeningly cynical political act by the United Nations, an organization that's evidently incapable of doing anything that isn't sickeningly cynical.

As I've said before, Generational Dynamics and this web site do not take political sides. I think that pretty much all politicians -- Republican or Democrat, left or right, liberal or conservative -- act like idiots most of the time.

This political paralysis is occurring around the world, especially in the countries that fought in WW II. The effect of this political paralysis is to allow political decisions to be made by younger generations of terrorists and extremists. If anything good comes out of this morass is that the ridiculous Kyoto treaty may finally be shown to be dead, but the demise of the Kyoto treaty shows how world paralysis is leading to a new world war. (4-Jan-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

China and Taiwan step closer to military confrontation

Taiwan President Chen Shui-bian took the offensive on Sunday, New Year's Day, in a live television address to the nation.

Chen called for parliamentary passage of a multibillion dollar arms package, pointing to increased Chinese militarism:

"At present, the Chinese People's Liberation Army has deployed 784 ballistic missiles targeting Taiwan along the coast across the Taiwan Strait.

"Recent reports on the military power of the People's Republic of China, published by the United States and Japan respectively, have made it very clear that China's military development evidently exceeds the reasonable scope of its defense needs.

"In the face of such imminent and obvious threat, Taiwan must not rest its faith on chance or harbor any illusions. We shall seriously contemplate how our self-defense capabilities can be strengthened and how to effectively respond to the gradual tipping of military power across the strait in favor of China."

More significant, though, was Chen's pledge to go ahead with his plan for Constitutional reform immediately -- an indirect promise to move toward full independence from China. He made repeated references to "Taiwan consciousness," and said he will stick with his four principles of sovereignty, democracy, peace and parity. He said this is the wish of Taiwan's people.

Taiwan poll results to question: "Do you feel Taiwanese, Chinese or both?" <font size=-2>(Source: WSJ)</font>
Taiwan poll results to question: "Do you feel Taiwanese, Chinese or both?" (Source: WSJ)

Indeed it is the wish of Taiwan's people, because of generational changes in Taiwan. The adjoining graph, which shows the number of Taiwanese who call themselves "Chinese" versus "Taiwanese" shows how the generational change is playing out. As the older generation dies out, the number of people calling them "Chinese" has been decreasing; as younger generations grow older, the number of people calling themselves "Taiwanese" is increasing.

This change was noticed 1½ years ago by Singapore Prime Minister Lee Hsien Loong, in a televised speech, after a visit to Taiwan:

From the point of view of Generational Dynamics, this is the type of generational change that always occurs during a "generational crisis" period. The violent, genocidal civil war that led to the government on Taiwan ended in 1949. The people who lived through that war are willing to do anything to keep another such war from occurring, so they tend to identify with the Chinese mainland; those born after the war, with no personal memory of it, have no fear of another war, and are more willing to identify themselves as being "Taiwanese."

A similar generational change is taking place in China. The most noticeable sign of this is the dramatic increase in regional mass riots. These riots are increasingly common in China, with 74,000 riots occurring in 2004, according to Chinese officials. In a widely reported recent incident in Dongzhou, about 80 miles from Hong Kong, a protest by 10,000 villagers was put down by Chinese security police, who killed several dozen villagers. As I wrote last January, China's society is unraveling and headed for civil war, and this trend will only accelerate as the generation of mainland people who lived through the same civil war disappear.

China's position on Taiwan is also becoming increasingly hardline. The most dramatic example was China's Anti-Secession law, which guaranteed Chinese military action in case of any Taiwanese moves towards independence -- such as moving forward on Constitutional reform. This law, passed in March, caused massive public demonstrations in Taiwan, the largest in history.

On January 3, China made an initial response to Chen's speech through an analysis in the state-controlled media:

A confrontation between Taiwan and Beijing in 2006 has been building for several years because of Chen's stated constitutional reform plans for this year. For all that time, there's been a debate among academics whether an actual confrontation would take place.

For example, one 2004 study by a Taiwanese professor said that a Chinese invasion of Taiwan would not take place in 2006. He gives several reasons, the most important of which is that China believes that it's becoming militarily stronger and America is becoming militarily weaker.

The most intriguing argument is that China can't invade in 2006 because it doesn't want to do anything to derail the prestige it will receive from hosting the Olympics in 2008.

However, these arguments are naïve because they overlook the generational situation. The argument about the Chinese Olympics is particularly naïve; if it were true, then anyone could blackmail Beijing in 2006 and 2007 with no fear of retribution from a China more concerned about the Olympics. That's silly.

People think that "cooler heads will prevail" on both sides, rather than risk a war that could be devastating for Taiwan, and trigger war with America. The implication is that people will think things over, and compromise rather than risk war.

But that isn't what happens during a generational crisis period. All sides become more and more hardline during a crisis period, since the generational changes cannot be reversed. Instead of cooler heads prevailing, it happens more and more that confrontational heads prevail.

A war could happen anytime, by miscalculation. If China believes that it has the ability to launch a lightning fast military takeover of Taiwan before the U.S. could respond, it would do so, miscalculating the U.S. response. An American response would be swift but overconfident, and a miscalculation might underestimate the strength of China's capabilities. (3-Jan-06) 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.