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


Web Log - March, 2006


When can a Muslim lie without being immoral?

We have the answer from court testimony by Zacarias Moussaoui, the admitted terrorist who claims that he was to have piloted an airliner into the White House on September 11, 2001.

Zacarias Moussaoui
Zacarias Moussaoui

During his testimony, Moussaoui said there were times when a Muslim can lie without being immoral:

Moussaoui was asked whether he lied after his arrest in August 2001 because still dreamed of being a jihadist. He didn't disagree.

"You're not dead until you're dead," he said. (29-Mar-06) Permanent Link
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Mass Latino demonstrations protest proposed immigration bill

The fury between Latinos and non-Latinos has substantially increased in the last few months, especially since plans for a new immigration bill, including a fence separating Mexico from the United States, were announced last year.

You just have to listen to economics journalist Lou Dobbs and pundit Jack Cafferty rant and rave on their respective slots on CNN to understand how deep the hostility towards Mexicans has become among many Americans.

There were over 500,000 Latino marchers in Los Angeles <font size=-2>(Source:</font>
There were over 500,000 Latino marchers in Los Angeles (Source:

And you just have to see how mobs of Latinos in cities across the country -- over half a million in Los Angeles on Saturday, many carrying Mexican flags -- are protesting the proposed legislation and demanding immediate citizenship for undocumented Mexicans.

The debate going on in Washington is not "whether" to crack down on undocumented Mexican workers, but on how hard to crack down.

The most aggressive legislation would (supposedly) erect a wall all along the Mexican-American border, and would (supposedly) make it a felony to be an undocumented worker.

The more easy-going legislation, supported by political enemies President George Bush and Senator Ted Kennedy, would permit undocumented workers to continue working under strictly defined rules, and eventually qualify for citizenship over a 12-year period.

From the point of view of Generational Dynamics, all such legislation is a waste of time. With millions of legal and illegal Mexican immigrants living and working in the American Southwest and in other American cities, and millions more pouring across the border, there's no longer any legislative solution to the increasing level of conflict, short of war. The idea of building a fence is so ridiculously impossible, you'd think that a politician would be embarassed to even mention it, but being stupid has never stopped a politician before.

What's more important is the increasing hostility on both sides. The legislation being discussed today is much harsher than anything that would have been considered even a year or two ago.

And Latinos have been mobilizing as never before. Of particular significance is a shift in loyalty of the second-generation native-born Latinos. Formerly they identified more with white Americans, but now they're identifying more with undocumented Hispanics.

Thus we see a classic fault line forming between two identity groups -- the non-Lation Americans and the Mexican community - legal immigrants, illegal immigrants, and native-born second-generation Mexican immigrants.

As we wrote last August, violence is increasing throughout Mexico, with a fault line between the indigenous peoples and those of European ethnicity.

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. This war will have two components: a civil war between Mexican factions, and a war with Americans in the Southwest. Of course it's impossible to predict the outcome of such a war, but one possible scenario is that Mexico may regain some of the land that it lost in the Mexican-American war of the 1840s. (28-Mar-06) Permanent Link
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New home sales and prices fall dramatically four months in a row

This appears to confirm that the housing bubble burst four months ago.

According to a new report by the Census Bureau and Dept. of Commerce, new home sales fell 10.5% last month, the biggest decline since April 1997, and far bigger than the 2% decline that analysts had predicted.

The decline is the fourth in a row, and follows a 5.3% decline in January.

Along with the decline in sales, prices for new homes have been falling as well. Median prices fell 1.6% from January to $230,400, down from the all-time high of $243,900 in October.

New home sales and prices, seasonally adjusted, January 2000 to February 2006
New home sales and prices, seasonally adjusted, January 2000 to February 2006

The above graph, based on Commerce Dept. figures, shows that sales and prices have generally been increasing steadily since 2000, during the heart of the "housing bubble," but that they both started a sharp decline in October.

Housing inventory in number of months, seasonally adjusted, January 2000 to February 2006
Housing inventory in number of months, seasonally adjusted, January 2000 to February 2006

The adjoining graph shows the same thing a different way. Since 2000, the housing inventory has remained steady at about four months, meaning that it takes about four months to sell a home once it comes on the market. Starting in June, the housing inventory began to build, and in February it was well over six months.

This two-month increase in housing inventory implies that the fall in sale and prices is likely to continue. There are an increasing number of unsold new houses on the market. If sales are still dropping off, even in that atmosphere, then buyer psychology must have changed significantly.

Pundits are generally unfazed by these developments. On Saturday, I watched a young girl on CNN, whom I won't name to spare her further embarassment, bubble and gush about how wonderful the economy was, with the stock market going up and the sales of existing homes going up.

The stock market, as I've written a number of times, is still overpriced by a factor of over 220%, over its book value of DJIA 4500, so that an increase makes it even more overpriced.

Existing home sales through February, 2006 <font size=-2>(Source:</font>
Existing home sales through February, 2006 (Source:

As for sales of existing homes, they don't quite tell the story the the pundits are claiming, as the adjoining graph shows. It's true that existing home sales were sharply up in February, that followed two months of even sharper declines. The February figure is still well below the November figure, which itself is down from the peak in September and October.

It's also worth understanding that existing home sales figures are often less reliable than new home sales. The reason is that new home sales are counted when the contract is signed, while existing home sales are counted when the final closing takes place, which is often two months later. Thus, existing home sales figures are often two months out of date, and new home sales figures serve as leading indicators of what's coming.

Frankly, the first two graphs above seem very dramatic to me. A sharp fall in sales and prices for one or two months is typical of market fluctuations, but when it lasts four months and appears to be accelerating, then something beyond a simple fluctuation seems to be happening.

Since 2002, Generational Dynamics has predicted that we're entering a new 1930s style Great Depression. This is an example of a "long-range prediction," in that it's based on analyzing patterns over many decades or even centuries. It tells you something that's going to happen with 100% certainty, but does not give a time frame more precise than a couple of decades.

Predicting a specific time for a financial crisis is impossible, as can be proved using the mathematics of Chaos Theory. But what can be done is to combine short-term trends with long-term forecasting to come up with a probabilistic short term forecast -- that is, a prediction that's less than 100% certain, but which provides a more specific time frame. It's this trade-off between time frame and probability that I've been developing on this web site, and it's why I've never gotten a prediction wrong. As long as you don't follow the rules dictated by Chaos Theory, then you can be successful making predictions.

So what we have now is this: A prediction of major financial crisis that's 100% certain but not specific as to time; but there's more, as time goes by, it becomes increasingly probably on a month by month or day be day basis. We also have various "short-term" indicators: the stock market is increasingly overpriced; the housing bubble seems to have burst, and sales and prices seem to be falling rapidly; the the trade deficit keeps increasing exponentially; the Tokyo stock exchange is becoming increasingly volatile; and Japan's plans to raise interest rates are threatening the "carry trade" bubble.

These short-term indicators are all trending in the same direction, and they're all supportive of the long-term prediction (financial crisis, 1930s style Great Depression). Perhaps all the short-term indicators will turn around, and the financial crisis won't begin until next year or later; but the probability is increasingly higher that the financial crisis will begin much sooner than that. (26-Mar-06) Permanent Link
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The Congressional calendar this year is just 97 days

It's the shortest Congressional calendar in 60 years, according to a report on CNN.

In weeks that they're in town at all, they're only in from Tuesday night through Thursday.

But most weeks they're not in Washington at all. They take 2-3 weeks off for any holiday - President's day, Saint Patrick's day, Easter, Memorial Day, Independence Day, and so forth.

In January they were in session just one day -- for the State of the Union address. And in August, they're not in session at all.

This all ties in with the theme I've been exploring: The countries around the world that fought in World War II are now almost in a state of paralysis, now that the generations of heroes who fought in that war are almost completely gone.

Last week I described the ideological paralysis in China's People's National Congress.

Before that, I described how Israel is becoming increasingly dysfunctional. France rejected the proposed EU constitution on a generational vote.

In America, personal savings have plummeted to Great Depression levels, and public debt is growing exponentially, but all that the Washington politicians can do is call each other names.

This actually isn't surprising, according to Generational Dynamics principles. The problem is that the people in charge today are from the Baby Boomer generation, born after World War II. They because adults in the 60s and 70s where they achieved their greatest glories by winning political battles against their war hero parents. Meanwhile, their war hero parents took care of things, made sure that the country was safe and solvent.

Now the Boomers are in charge, and they never developed the skills to actually do anything, except to complain what other people do. Since the same thing is happening in all countries that fought in WW II, the same sort of paralysis setting in in all these countries.

Conflict risk level for next 6-12 months as of: 9-Feb-2006
W. Europe 1 Arab Israeli 3
Russia Caucasus 2 Kashmir 2
China 2 North Korea 2
Financial 3 Bird flu 3
Key: 1=green 1=Low risk 2=yellow 2=Med 3=red 3=High 4=black 4=Active

This paralysis won't last forever, of course. Sooner or later one of these crises will occur, and then everything will start to change very, very quickly.

In the meantime, that's why the Congressional calendar is only 97 days long this year. If all you're going to do is call each names, what's the point of sticking around? (22-Mar-06) Permanent Link
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Is the Israeli election campaign too dull?

Things will get exciting again when another generational shoe drops.

According to a news report on NPR yesterday morning, people are getting bored with the election campaign. There are three parties: The leftist Labor party, let by Amir Peretz; the rightist Likud party, led by Benjamin Netanyahu; and the centrist Kadima party, created by former Likud leader Ariel Sharon just before he became comatose in January, now led by Ehud Olmert. Polls have been holding steady, saying that Kadima is going to win on March 28.

The Israelis interviewed yesterday morning complained that all these candidates are boring.

They griped that there's no great leader running -- someone like Yitzhak Rabin (1922-1995), Menachem Begin (1913-1992), or even Ariel Sharon (1928-). These choices aren't surprising -- these are some of the great heroes in the creation of the state of Israel and the war against the Palestinians in the late 1940s.

But alas, that generation is gone now, and no one in the generations born since 1949 can hope to measure up.

The Palestinian side was boring for a long time too, after Yasser Arafat died. Mahmoud Abbas replaced Arafat as President of the Palestine Authority, but Abbas was also pretty boring, wasn't he.

But the Palestinian side has gotten quite exciting in the last few weeks. That's because the younger generation has spoken, and elected the candidates from the Hamas militia party, whose platform calls for the destruction of Israel.

The reason that the Israeli election is boring is because Israeli youth haven't yet similarly spoken. That may happen on March 28 or it may happen later, but when the young adult generation speaks, they'll coalesce around a candidate who will take Israel into an entirely new direction. It's impossible to predict for sure what that direction will be, but chances are it will be a sharp turn to the political right, with a heavy emphasis on security and no compromise with the Palestinians.

An Israeli turn to the right will re-energize the young Palestinians to turn sharply against Israel, especially in Gaza where the the median age is 15.6.

These are the generational shoes that we can expect to drop in the next few months, and the inevitable slide toward all out war will become obvious even to the most brain-dead politician or journalist.

When the Bush administration announced the Mideast Roadmap to Peace three years ago, politicians, journalists and pundits were certain that the only thing preventing its success was Yasser Arafat himself.

I wrote that Ariel Sharon and Yasser Arafat might hate each other, but they'd each survived the genocidal Arab-Jewish wars of the late 1940s when Palestine war partitioned and the state of Israel was created, and they would do anything to keep such a war from happening again. Now that these two leaders are gone (well, one is almost gone), a generational change is in order, and the region is descending into chaos.

Generational Dynamics predicts, with near mathematical certainty, that the Arabs and Jews are headed for a new genocidal war that will eventually engulf all the countries in the entire region. If the current Israeli election is too boring, then perhaps the best thing to do is to enjoy the boredom while it lasts. (21-Mar-06) Permanent Link
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Journalists have a 'civil war in Iraq' orgy over the weekend

It's hard to remember when news shows had so much sheer non-stop nonsense as I heard all weekend.

The trigger was a statement by an Iraqi politician:

"It is unfortunate that we are in civil war. We are losing each day as an average 50 to 60 people throughout the country, if not more - if this is not civil war, then God knows what civil war is" - Iyad Allawi, former interim Iraqi Prime Minister

The news shows couldn't talk about anything else all weekend, and the only question worth debating was whether a civil war was already in progress or whether it was just about to come.

There were other Iraqi politicians who said there was no civil war, and there were Army generals who said there was no civil war, but the journalists I saw all made it clear that those views were to be disregard, presumably because they have some "agenda." Oh no. The only one who's telling the truth is a 2nd rate Iraqi politician who's running for office.

But it's much, much worse than that.

There were two other important stories in the news last week:

Now, 50-60 deaths in the entire country of Iraq is not good, but there are some large cities that have experienced that many murders in a single weekend. What's happening in Iraq isn't a civil war in any way whatsoever. When Allawi says, "If this is not civil war, then God knows what civil war is," I'm going to suggest Darfur and the Balkans.

I listened to a lot of CNN's Wolf Blitzer on Sunday. This guy's supposed to be a seasoned senior journalist, to be held to a high standard. Is he really so stupid or incompetent that he can't make the obvious connection between the Iraq 'civil war' story and the real civil wars in Darfur and the Balkans?

And I don't mean to pick on just Blitzer. They all did it -- FOX, MSNBC, BBC, and network newscasts.

Once again what we're seeing are the fantasies of the journalists who are so incredibly anti-American that they'll fall for anything that makes America look bad, no matter how unprofessional it makes them.

As I've explained many times in the last three years, Generational Dynamics says that a civil war in Iraq is impossible because only one generation has passed since the genocidal Iran/Iraq war of the 1980s, and it's impossible for a new genocidal crisis war to begin less than two generations after the end of the previous one. (21-Mar-06) Permanent Link
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China's People's National Congress paralyzed by ideology

China's top officials were unable to stop from committing a "historic error" when they were unable to agree on a plan to end the country's mass riots.

Two months 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 -- where local governments simply confiscate local peasants' lands for their own purposes, without properly compensating the peasants. A recession which caused massive unemployment might well be the trigger leading to a massive rebellion. 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."

These increasing numbers of mass riots are like 9/11 in America. They're causing a great deal of anxiety, especially since China has a history of national rebellions that kill tens of millions of people. So the desire is high to find a way to reduce the number of regional riots.

The solution was felt to be a new law that would protect peasants' property rights and require adequate compensation for confiscation of land. The new law was to be passed at the recent meeting of the National People's Congress. But the meeting ended Tuesday with no such law being passed.

Instead, the Congress broke down on ideological grounds. On one side, the "capitalists" wanted peasants to have the right to sell their property on the open market, and to receive proper compensation when the government confiscates their property; on the other side, the "socialists" wanted land to "belong to the people," with no property rights for peasants, just like in the good ol' days of Mao Zedong.

Thanks to the ideological arguments, the National People's Congress is paralyzed, unable to move. This is a theme that I've repeated often in the last year: Israel is becoming increasingly dysfunctional following the loss of Ariel Sharon, just as the Palestinians are becoming increasingly dysfunctional following the death of Yasser Arafat. France rejected the proposed EU constitution on a generational vote. In America, personal savings have plummeted to Great Depression levels, and public debt is growing exponentially, and Washington politicians are paralyzed by moronic political name-calling.

This kind of paralysis is happening around the world to companies that fought in World War II. This paralysis part of the cyclic pattern that occurs to every nation every 80 years or so, when they approach a new crisis war.

To understand why it happens, here's why it's happening in America: The G.I. generation that won World War II vowed that nothing like that should ever happen again and, in particular, their children should never have to fight in any such war. They believed (incorrectly) that if they had killed Hitler in 1935, then there would have been no WW II, and they decided that they must stop Communism before it leads to a new world war. This policy led to the Vietnam War. However, the kids in the Boomer generation, born after the war, had no such fear of Communism. This caused a "generation gap," and they rioted and humiliated their G.I. parents during America's "generational awakening" period in the 1960s-70s.

The same kind of generation gap happened in every country that had fought in World War II. For example, they were called "'68ers" in France and Germany because of the massive riots in 1968. There was an "awakening era" and a generation gap in country after country. The isues may have differed from country to country, but there was always a generation gap, and intergenerational rioting and political fighting.

This generation gap showed itself in other ways. In particular, Boomers kept complaining and arguing, but never actually did anything, since they left it up to their G.I. parents to take care of things. 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. This was all accomplished by those in the G.I. generation.

Today, the G.I. generation is gone. Public debt is increasing exponentially, but the Boomers can't do anything but call each other names, since they don't know how to actually do anything, and they assume that everything will automatically be taken care of for them. The people in Generation X, the generation just behind the Boomers that grew up in the 60s and 70s, hate the Boomers' uselessness, but the GenXers don't know how to do anything either. So the result is the near-total paralysis we see. And the same thing is happening in all the countries that fought in WW II.

There is one generation that can do something -- it's the millennials, born in the 1980s and 1990s. They have no fear of anything, but they're furious at any poverty, bigotry or other injustice that they suffer. That's why kids are rioting in Paris, in the Gaza Strip, in Pakistan, in India, in China, in Indonesia, and in many other countries. Their Boomer and Xer parents are paralyzed, and can't do anything to stop the violence.

This violence is growing, and at some point it will spiral out of control in some country.

From the point of Generational Dynamics, the world is headed for a "clash of civilizations" world war with near 100% certainty. It could begin next week, next month, next year or thereafter, but as world tensions mount, it's likely to begin sooner rather than later. (17-Mar-06) Permanent Link
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Slobodan Milosevic's death on Saturday reminds us of the relevance of World War I

Found dead in his cell during his trial for war crimes in Bosnian war, the death of the former Serb leader has evoked the strongest emotions among Europeans. He's being tried with 66 counts of genocide, crimes against humanity and war crimes.

Slobodan Milosevic
Slobodan Milosevic

When you were in high school, you probably learned how World War I started -- the assassination in 1914 of Austrian Archduke Franz Ferdinand by a Serb high school student, as part of a conspiracy involving Muslims and Orthodox Christians Bosnian students. The resulting war, which pitted Muslims and Orthodox Christians against Western Christians (Catholics and Protestants), and then spread to (Orthodox) Russia, to (Western Christian) Germany and France, and to (Muslim) Turkey.

Today we talk about a "clash of civilizations" between Muslim and Western civilizations as if that were a new thing. Actually, there are three different major civilizations involved, and it's been going on periodically for centuries.

When most Americans refer to "Europe" they're almost always talking about Western Europe -- U.K., France, Germany, Italy, and so forth.

Furthermore, most Americans assume that Eastern Europe is pretty much like Western Europe.

Finally, most Americans think that World War I was pretty much the same as World War II in Europe, with the Germans attacking France and all.

Most of that is completely wrong. Eastern Europe is Christian, but not Catholic or Protestant; Eastern Europe is part of the Orthodox Christian civilization, extending further east into Russia and Asia, where the Russian Orthodox religion is practiced.

Eastern Europe / Western Asia, showing major Orthodox/Muslim fault line regions: Balkans, Crimea, and Caucasus (mountains).  Not shown: Muslim Bosnia, east of Serbia in Balkans.
Eastern Europe / Western Asia, showing major Orthodox/Muslim fault line regions: Balkans, Crimea, and Caucasus (mountains). Not shown: Muslim Bosnia, east of Serbia in Balkans.

Any "clash of civilizations" between Christians and Muslims mostly involved Orthodox Christians, and those crisis wars most took place in three regions: The Balkans, the Crimea and the Caucasus.

WW I heavily involved all three of those regions, and I hardly involved Western Christianity at all, even though Germany, France and UK were marginally involved. WW I was mainly an East European war, with enormous consequences for both the Orthodox and Muslim civilizations: Russia had its Bolshevik Revolution, ending its 500 year old Czarist empire, replacing it with a Communist state. And the Ottoman Empire, the Turkish empire that had conquered countries across Africa, Europe, Mideast and Asia under Muslim control, collapsed completely.

From the point of view of Generational Dynamics, all the major battles of WW I have been getting re-fought. There was the Iran/Iraq war of the 1980s, the war between Syria and Lebanon in the late 70s and early 80s, the war between Turkey and PKK Kurds that ended in 2001.

Conflict risk level for next 6-12 months as of: 9-Feb-2006
W. Europe 1 Arab Israeli 3
Russia Caucasus 2 Kashmir 2
China 2 North Korea 2
Financial 3 Bird flu 3
Key: 1=green 1=Low risk 2=yellow 2=Med 3=red 3=High 4=black 4=Active

Some major WW I battles have yet to re-fought. A good example is the Caucasus war. I've listed this region as one of the The Six Most Dangerous Regions of the World because it's overdue to explode into a full-fledged regional crisis war that will trigger the "clash of civilizations" world war.

But the Balkans war has been re-fought, right on schedule in the 1990s, almost exactly 80 years after the previous Balkans crisis war (the one that started WW I).

This brings us back to Slobodan Milosevic. Milosevic led the Serbs in a series of "ethnic cleansing" wars against the Croats and Bosnians. The Serbs are Orthodox, the Croats are Catholic and Protestant, and the Bosnians are Muslim.

Those three groups have been fighting crisis wars at regular intervals for centuries. The 1990s Balkans war had to happen, because crisis wars always happen again, 60-90 years later, when the generation of people who lived through the horrors of the preceding crisis war all disappear (retire or die), all at once.

And the 1990s wars were unbelievably brutal. A few weeks ago, I quoted a description of these wars by Amy Chua, in her book, World on Fire, about the 1990s Balkans wars. It's worth repeating:

"In the Serbian concentration camps of the early 1990s, the women prisoners were raped over and over, many times a day, often with broken bottles, often together with their daughters. The men, if they were lucky, were beaten to death as their Serbian guards sang national anthems; if they were not so fortunate, they were castrated or, at gunpoint, forced to castrate their fellow prisoners, sometimes with their own teeth. In all, thousands were tortured and executed."

When I quoted this description last month, it was in the context of explaining why there wasn't, and couldn't be, a civil war in Iraq, no matter what nonsense you hear from the journalists hoping to make America look as bad as possible. There can't be a civil war in Iraq because the Sunnis and Shiites don't hate each other nearly enough.

That's the difference between crisis wars and non-crisis wars in Generational Dynamics: non-crisis wars can be deadly, but they're logical, methodological and political. But crisis wars are driven by genocidal fury, pure visceral hatred.

Since the Balkans wars had to happen, it seems strange to blame Milosevic for being its cause. And it seems even stranger to say, as a Washington Post editorial said, that he was "one individual [who] can shape the course of history." He was the agent, the person who was in the right place at the right time. If he'd never been born, then someone else would have led the wars, and they would have been been the same.

Here's something else that's strange: The news coverage on TV and on the 'net often said something like, "the 1995 massacre of 8,000 Muslims in Srebrenica was the worst atrocity in Europe since World War II."

That was a bad atrocity, but there have been plenty of worse atrocities since WW II, though not in Europe; there was the murder of close to a million Tutsis in Rwanda in 1994; there were thousands of Palestinian refugees butchered in Sabra and Shatila in 1982; 1 1/2 million deaths in the Iran/Iraq war of the 1980s, where poison gas was used; and there were millions slaughtered in the Cambodian killing fields in the mid-1970s. There are many more examples of genocide since WW II.

All these different genocides were in different countries, on different generational timelines, with several of them on the WW I timeline.

World War II began roughly 20-25 years the genocides of WW I, and today we're roughly 10-25 years past many of the genocides of re-fought battles on the WW I timeline.

Today we're about to re-fight the leftover battles of WW I, especially the Russian Revolution, and we're about to re-fight all of the battles of WW II.

As Slobodan Milosevic goes to his funeral, he's considered to be a unique monster. As we head for a new "clash of civilizations" world war, we're undoubtedly going to see a number of additional similar monsters. (14-Mar-06) Permanent Link
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Trade deficit again worse than expected, reaches a fresh historic high

Related: US Treasury bond prices fall dramatically on news from Japan

Imports and exports <font size=-2>(Source: Dept. of Commerce)</font>
Imports and exports (Source: Dept. of Commerce)

The above diagram from the Bureau of Economic Research press release tells the story:

Economists had expected a $66.5 billion deficit. Brian Bethune, an economist at forecasting firm Global Insight told Bloomberg that the trade gap "is one of the symptoms of a U.S. economy growing faster than other countries."

I've seen these Global Insight guys quoted from time to time, and they always say such sugary nonsense they give the impression of airhead. This time, the exponentially growing account deficit supposedly means that the American economy is growing fast. By that logic, borrowing more and more and more on my credit card, letting my credit card debt grow exponentially, means that I'm a better and better worker. I don't see the connection. Do you?

What's happening is that other countries -- Japan, China, Europe -- have been purchasing US Treasury bonds in massive volumes. We use the money they give us to pay for our exports, to pay for our war in Iraq, to pay for Katrina benefits, and so forth. See? For those of you who are angry about all the money we're spending to fight the wars in Iraq and Afghanistan, don't worry about it -- China's paying for it, not us.

I'll admit that I didn't think this could go on as long as it has. I figured that China would begin to get fed up with this by now, but they're as addicted as we are. By giving us money in exchange for Treasury bonds, we buy Chinese exports, which lets them keep their own bubble economy going. It's incredibly bizarre.

But now, there's been a change in the last week.

One of the biggest mechanisms for this purchase of bonds has been the "carry trade." As I explained a few weeks ago, hedge fund investors have been borrowing Japanese yen at 0% interest, converting them to dollars, and lending the dollars to American investors at 4.5% interest or more. This has been going on for years, since the Japanese bank rate has been 0% for years.

But on Wednesday, the Bank of Japan announced that it's ending its "quantitative easing" that made huge amounts of money available (increased liquidity), and maintained zero interest rates. The policy was first instituted in 1999, when Japan was in a period of deflation.

As you read articles about the BOJ's announcement, you quickly learn that no one has any idea what's going to happen. One reason is that no one has any idea just how big the "carry trade" is, and how interlocked the carry trade investments are with one another. The danger is that the sudden loss of liquidity will cause one hedge fund to collapse, and that will cause a chain reaction that will bring down thousands of other hedge funds, one after another.

One thing that's already happens is a sharp fall in the demand for long-term US Treasury bonds. The high demand for these bonds had been so high that prices had been pushed up significantly, with the result that yields were down, lower than the yields on two-year treasury bonds. In anticipation of the Japanese move, demand for these bonds has fallen so much that yields have risen from 4.58% to 4.75% in the last month alone.

(Sorry about that last paragraph. Here's an explanation: A bond pays a fixed amount of money after 10 years or 2 years, respectively. The more money you have to pay to buy a bond, the lower the "yield" or interest rate you're going to earn. So prices of bonds go up as yields go down, and vice versa. Demand had been going up, so prices went up, and yields were low, at 4.58% a month ago. In the last month, demand has fallen so prices have fallen, and yields have risen to 4.75%.)

This sharp fall in demand for US Treasury bonds might level off, or it might the first sign of a more precipitous fall.

From the point of view of Generational Dynamics, we're headed for a financial crisis that could begin tomorrow, next week, next month or next year. The stock market today is still overpriced by a factor of over 220%, making it highly vulnerable to a panic. There's a housing bubble making homes as much as 100% overpriced in some regions. And there's a "carry trade" bubble of unknown size, except that it's known to be huge. If one of these bubbles bursts, then it will trigger bursting of the other bubbles as well, creating a worldwide 1930s style Great Depression. With the US trade deficit growing exponentially with no signs of stopping, the crisis will occur sooner rather than later. (11-Mar-06) Permanent Link
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Terrorist bomb blasts in India's holiest city polarize Hindu-Muslim relations

Just a few days after President Bush's warm visit to India and his cold visit to Pakistan,

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

Muslim terrorists on Tuesday blew up the Sankat Mochan temple, built in 1776, one of Hinduism's holiest shrines. The blasts took place in Varanasi, Hinduism's holiest city, on a Tuesday, Hinduism's holiest day of the week, when the Temple was packed with people. There were simulataneous blasts at the Varanasi railroad station. In all, more than 20 people were killed.

The country breathed a sigh of relief when the bombings did not trigger another round of Hindu-Muslim rioting, as has occurred in the region frequently in the past, although armed police were standing vigil across the country, especially at temples and public places.

Still, a number of commentators pointed out numerous signs that relations between Hindus and Muslims are becoming increasingly suspicious and hostile.

This was becoming apparent anyway last month when massive Muslim rioting occurred over the Danish cartoon controversy.

But the most remarkable reaction was the political exploitation by India's opposition leader, LK Advani, who belongs to the Hindu nationalist Bharatiya Janata Party (BJP), who blamed Pakistani Muslims for the bombings, saying "People of India will not feel assured until the terrorist infrastructure across the border is fully dismantled." Pakistan quickly rejected the charges, but this is one more sign that relations between India and Pakistan have been deteriorating.

Conflict risk level for next 6-12 months as of: 9-Feb-2006
W. Europe 1 Arab Israeli 3
Russia Caucasus 2 Kashmir 2
China 2 North Korea 2
Financial 3 Bird flu 3
Key: 1=green 1=Low risk 2=yellow 2=Med 3=red 3=High 4=black 4=Active

Generational Dynamics has been predicting for some time that India and Pakistan were headed for certain war over the disputed Kashmir region, but the two countries have maintained friendly relations because of a remarkable détente that Pakistan's President Pervez Musharraf and India's Prime Minister Manmohan Singh have engineered over the last few years.

The détente has been getting frostier recently, and this became apparent last week when President Bush received a very friendly reception when he visited India, and was met by PM Singh at the airport, after which the two leaders signed a very significant nuclear cooperation treaty. Indeed, in a world where America is less and less popular, India is the countries where Americans are still the most popular.

When President Bush moved on to Pakistan, he was met at the airport by President Musharraf's daughter. The two leaders were openly friendly, but President Bush "hinted" that Musharraf could be doing more to stop terrorists, and Musharraf openly expressed anger at Afghanistan president Hamid Karzai for giving intelligence information to the media.

Returning now to the Varanasi bombings, the political exploitation by BJP head LK Advani is just one sign of increasing anger between Hindus and Muslims. The new bombings appear to be similar to the coordinated bomb blasts across New Delhi last October.

In an analysis by Hindu opinion writer Vir Sanghvi:

Poll: Negative perception of Islam is increasting <font size=-2>(Source: Washington Post)</font>
Poll: Negative perception of Islam is increasting (Source: Washington Post)

The same kind of thing is happening in America, according to a new Washington Post-ABC News poll.

The poll was something of a surprise to me. Right after 9/11, the American view of Muslims was in the cellar, but I thought that Americans had been developing a more positive view of Muslims. Not true. The poll found that 46% of Americans have a negative view of Islam, up from 39% in the moths after 9/11/2001. So even without terrorist acts on American soil, the American view of Muslims continues to degrade. I guess nothing shows this more clearly than the recent widespread outrage to the port terminal takeover by Dubai Port World.

From the point of view of Generational Dynamics, this is all to be expected, as we head for a "clash of civilizations" world war. Muslims around the world are forming identity groups with one another, with negative attitudes toward America, Europe and the West. America, Europe and the West (including India) are returning the favor. (10-Mar-06) Permanent Link
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Israel is becoming increasingly dysfunctional

With Sharon in a coma, elections coming soon, and growing Hamas influence, Israel's government is less and less able to make it through the day.

In May, 2003, when the Mideast Roadmap for Peace was announced, Yasser Arafat and Ariel Sharon were leading the Palestinians and Israelis, respectively. I wrote that, contrary to what everyone else was saying, these two men were holding back their respective populations from war, and that when they were gone, the region would descend into chaos and war.

When Arafat died, Mahmoud Abbas took over as Palestinian Authority president, and the West Bank and especially Gaza, became increasingly unruly and ungovernable.

When Ariel Sharon collapsed, I wrote that no one could replace Sharon, and that Israel would also become ungovernable, just like the Palestinians.

That's what happening. The main problem is how to deal with Hamas, the Palestinian terrorist group that recently when won a major election victory.

"Trouble is, it is not at all clear what government policy is nowadays, since practically every Kadima [the political party in power] politician has a different approach to dealing with Hamas, ranging from [the] promise to either arrest the designated Hamas prime minister, Ismail Haniye, ... to Shimon Peres’ insistence that Israel engage PA President Mahmoud Abbas (Abu Mazin) in talks aimed at reaching some agreement," according to Robert Rosenberg's Ariga column for Monday.

Even more important, Israel's "defense establishment is recommending more unilateral steps meant to isolate the Palestinians -- including cutting off fuel supplies to them, ... and cutting any ties between Gaza and the West Bank," according to Rosenberg. "The goal of such moves is not clear, other than to punish the Hamas for getting elected. ... Israel would reduce to an absolute minimum any cooperation with several key humanitarian agencies, including the Red Cross and UNRWA, while maintaining just enough cooperation with the Palestinian health services to prevent catastrophe. Israel, of course, would not transfer any funds to the PA -- lest it be used for salaries a Hamas government would have to pay. ... [The] generals are recommending large-scale withdrawals in the West Bank, retaining ‘security zones,’ including all of the Jordan Valley, and several settlement blocs, including an enlarged Maale Adumim, effectively cutting the West Bank in half. These are all recommendations to the political echelon, of course, not final decisions made by the government."

The reason that Israelis without Ariel Sharon are frozen into indecision is because they're waiting to see what Hamas is going to do. Yasser Arafat recognized Israel as a legitimate state. Will Hamas repudiate Arafat's recognition of Israel? Hamas leaders recently visited Vladimir Putin in Moscow, where they were told that they had to recognize Israel. But so far, standing firm, refusing to do so.

The Palestinians, in turn, are unable to make decisions either. The first meeting of the new Palestinian Parliament broke up in a bitter walkout by members of Fatah, the party that had lost to Hamas in the elections. Fatah's leader is Abbas, and the split between Fatah and Hamas may be mean that Abbas may not last long as Palestinian Authority President.

And Hamas itself doesn't speak with a single voice. The leaders of Hamas, the ones who visited Putin in Moscow, are in an older generation sitting in the West Bank, as is appropriate for the potential leaders of the Palestinians.

The problem is, as I've mentioned before is that the median age in the Gaza Strip is 15.6. The Palestinians are a society of children -- literally -- when you consider their ages.

(I've read many, many articles on the Gaza Strip in recent weeks, and not a single one has mentioned this remarkable demographic fact. As usually, the journalists, politicians, pundits and high-priced analysts are oblivious to the simplest, most obvious generational facts.)

So the Hamas leaders can't just do what they want. They have to satisfy their major consituencies, one of which is a large group of children living in Gaza. These children will freak out if their Hamas leaders recognize Israel. That's why it's not going to happen.

Did you follow the chain I've been developing?

The Israelis are frozen because of the upcoming election and because they're waiting to see whether the new Palestinian government is going to recognize Israel. The Palestinian government is embroiled in a bitter split between the majority Hamas and the now-minority Fatah.

And Hamas has to respond to the demands of the children in Gaza.

Follow that logic, and you see that it's those crazy kids in Gaza that are running the show. What it comes down to is that everyone is waiting to see whether they'll settle down and behave, like good little boys and girls, or whether they'll explode into violence.

This is where Generational Dynamics guides us. These kids in this generation are ready to get it on with Israel. The genocidal war between Arabs and Jews in the late 1940s is as meaningless to them as the fall of the Roman Empire.

And we haven't even mentioned Iran -- which is calling for the destruction of Israel and is supplying weapons to Lebanese terrorist group Hizbollah.

Generational Dynamics predicts that there'll be a major new genocidal war between Arabs and Jews, and it will engulf the entire region, leading to a new world war, if one hasn't already begun in Asia or elsewhere. (7-Mar-06) Permanent Link
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Bird flu expected in North America this spring

Implications for you and your pets

H5N1 bird flu has been in 20 new countries in Europe and Africa in the last month alone, and is now pretty well established throughout Europe, the Mideast and Africa. About 100 humans worldwide have died from bird flu, but it's still very difficult for a human to contract the disease. The feared mutation that would permit easy (through the air) human to human spread, causing a worldwide pandemic, has not yet happened, though many experts believe it could happen any day, or next season if not this season.

However, the rapid spread of bird flu among birds in Africa means that the spread to North America birds cannot be far off. There will be a large migration of birds from Africa to North America this spring through the "Atlantic Americas Flyway," and the countries on this side of the Atlantic are just as vulnerable as countries on the other side. In fact, dead birds recently found in the Bahamas are causing concern that it may have already arrived, though Bahamian officials downplayed the concern.

The arrival of bird flu may or may not be detected for some time after it happens. There's evidence that bird flu was already in several European countries for a couple of months before it was detected, Now, based on the fact that North American gene sequences have been found in Astrakhan (in Russia, on the Caspian sea), some researchers believe that H5N1-infected birds have already been to North America and back to Asia.

In Germany, a cat has died of confirmed H5N1. The cat apparently caught the disease by eating an infected bird. The death from H5N1 of the cat has raised concerns in Europe that house pets, dogs as well as cats, are especially vulnerable. Hundreds of Germans are dumping their cats in shelters, for fear of contracting the disease from their pets. As a result, German authorities have ordered pet owners in all bird flu-hit regions to keep cats indoors and dogs on leashes.

Major flyways, bird flu status <font size=-2>(Source: UN FAO)</font>
Major flyways, bird flu status (Source: UN FAO)

The disease is spreading rapidly among birds around the world. Ever since last spring, when H5N1 was found to have infected birds at Lake Qinghaihu, the mid-China international meeting point and breeding ground for migratory birds, bird flu was poised to spread around the world. The Fall 2005 migration has already spread it to west Asia, the Mideast, Europe and Africa within a few short months.

When the Spring migration begins in a few weeks, tens of billions of birds will fly along the world's major flyways. It's likely that all remaining continents will be reached, including the Americas. China alone is expecting major new outbreaks of bird flu throughout the country. In just Jiangsu province, almost 10 million migratory birds will pass through, requiring the officials to set up a huge monitoring program involving 1,000 workers.

What's happening in Jiangsu province is being repeated all over the world. This will provide infinitely many more opportunities for different versions of the virus to intermix, greatly increasing the probability of a recombination that will create the mutations that allow the virus to pass easily from human to human, creating a worldwide human pandemic.

Whether a human pandemic happens or not, it's still necessary to prepare for the all-but-certain spread into North America. Here are some questions and answers:

Should I stop eating chicken?

All chicken for sale in the developed world is being tested for bird flu (and other diseases as well), so any packaged products you get from a supermarket are safe. At any rate, thoroughly cooking chicken or eggs would kill any virus anyway.

However, just to be safe, it's not a good idea to eat raw or undercooked chicken or eggs, but that's really never been a good idea anyway.

What about handling and preparing chicken?

If you live in Africa or Asia, or if you obtain chicken from your own or a friend's farm, then you should exercise sensible caution. Seek out instructions for proper handling and preparation to keep any disease from infecting you, or staying behind on tables, dishes, utensils, and other surfaces.

Incidentally, a lot of people in Europe are refusing to eat chicken, with the result that chicken prices are coming down sharply. Since chicken is completely safe if proper precautions are taken, you can save a chunk of money on your food bill.

I have pet birds.

Plan on keeping them indoors permanently.

I have a cat or dog or other pet

If bird flu is detected anywhere near you, keep these pets indoors.

How long will this be going on?

Bird flu will probably become endemic around the world, meaning that we'll have it for years.

Conflict risk level for next 6-12 months as of: 9-Feb-2006
W. Europe 1 Arab Israeli 3
Russia Caucasus 2 Kashmir 2
China 2 North Korea 2
Financial 3 Bird flu 3
Key: 1=green 1=Low risk 2=yellow 2=Med 3=red 3=High 4=black 4=Active

What does this have to with Generational Dynamics?

Nothing, really, except that a human bird flu pandemic would probably trigger the other major conflict risks, including a major financial crisis and a world war.

How can I protect myself and my family?

I once again strongly urge my readers to prepare for an H5N1 pandemic or for any kind of emergency (think of hurricane Katrina) 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. (3-Mar-06) Permanent Link
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