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


Web Log - February, 2007


Analysts and pundits totally flummoxed by Tuesday's financial bloodbath.

The Dow fell 200 points in four minutes around 3 pm.

I don't take very many risks on the web site, because of my concern for credibility. I reference only the most credible sources. I make predictions only when I'm absolutely certain, which is why all of my predictions have been right.

And I very rarely talk about what I "feel" is going to happen, and when I do, I clearly label that as my "opinion" or "feelings," subject to change.

So I will say this: It's very hard not to "feel" that something significant happened on Tuesday. And it's not what the analysts and pundits were talking about.

Investors panicked at little, but not much. But an experience like this cuts into the Boomer investors' giddy overconfidence. Whereas investors were "looking for reasons to buy" in past years, now they're "looking for reasons to sell."

Things looked really bad all day. The analysts were saying, "There's a flight to safety ... There's a low appetite for risk. ... This is a good thing because investors have been too complacent. ... People I've called on Wall Street say that this is a buying opportunity."

But then at 2:58 pm something happened:

Four North American markets on February 27, depicting the 200-point collapse in 4 minutes beginning at 2:58 pm
Four North American markets on February 27, depicting the 200-point collapse in 4 minutes beginning at 2:58 pm

At 2:55 pm, when the Dow was down 260, I heard: "If you put this little dip in context, it isn't that significant."

At 3:01 pm, when the Dow was down 470, I heard things like: "There's a lot of noise and shouting on the floor. At first we thought it was an error, but it's holding. ... We're moving to 500 point decline."

The lovely CNBC anchor Rebecca Jarvis points aaaalllll the way back to 2001, the last time the market was this shocking. <font face=Arial size=-2>(Source: CNBC)</font>
The lovely CNBC anchor Rebecca Jarvis points aaaalllll the way back to 2001, the last time the market was this shocking. (Source: CNBC)

Soon thereafter, we heard CNBC's anchor Rebecca Jarvis say, "I'm shaking my head because this is just shocking. You have to all the way back to 2001, one of the worst years for this exchange, to even find a down day like this."

For the rest of the afternoon, the comments went something like this: "Huh? What happened? ... I've never seen anything like this. ... There's no reason for this much of a selloff. ... The economy is strong, the fundamentals are good. ... This isn't time to panic. ... The market was overdue for a correction. ... I've never seen anything like this before - it reminds me of 1987."

The fact is that no one had any idea what was going on. They took guesses.

As I explained at length in my comprehensive analysis of macroeconomic theory that I wrote last year, "System Dynamics and the Failure of Macroeconomics Theory," economists have been wrong about everything, at least since the start of the bubble in 1995. They didn't explain or predict the bubble or its timing. They failed to predict low inflation or high unemployment in the early 2000s. They didn't predict or explain productivity increases. They didn't predict or explain the low interest rate "conundrum." They didn't predict or explain the housing bubble. They've been consistently wrong about almost everything.

I must have heard dozens of analysts, economists, pundits and journalists today. Not a single one mentioned the price/earnings ratio index. NOT A SINGLE ONE. The P/E ratio has been at 19 or above since 1995, and so a fall is overdue. The P/E ratios fall to the 5-10 range every decade or two. They did so six times in the last century, most recently in 1982. You have to be a total moron to think it won't happen again, and yet, there they all were, arguing over whether it would be a one-day or one week phenomenon before the market started going up again.

So let's make this clear: a major 1930s style Great Depression is coming, because the stock market is overpriced by a factor of about 250%, same as in 1929. (In 1987, when a brief panic occurred, the stock market was underpriced.)

For reasons that I've repeatedly discussed on this web site since 2002, we're headed for a new 1930s style Great Depression, complete with massive unemployment, bankruptcies and homelessness. There is nothing can be done to stop this. If you listen to the airheads on TV, including the airheads that I've been quoting, you will be screwed.

If you go back through history, there are of course many small or regional recessions. But since the 1600s there have been only five major international financial crises: Tulipomania bubble (1637), South Sea Bubble (1721), French Monarchy bankruptcy (1789), Hamburg Crisis of 1857, and 1929 Wall Street crash.

Each of these major international crises occurred roughly 70-80 years after the previous one. What you find is that each new "debt bubble" occurs at exactly the time that the generation of people who grew up during the previous financial crisis all disappear (retire or die), all at once. Thus, the length of time between these "generational" financial crises is approximately equal to the length of a maximum human lifetime.

Our 70-80 year interval is pretty much over. The next major 1930s style Great Depression is just around the corner, with 100% certainty. Nothing can be done to stop it. All we can do is prepare for it.

Perhaps the market will work its way out of the current crisis, as it has in the past. Perhaps things will settle down again. It's possible, but it doesn't fix the real problem. The market will still be overpriced by about 250%, and a collapse cannot be avoided.

A panic must occur before too much longer, because of all the huge and growing imbalances in the global economy. There's a significantly high probability that we're seeing the beginning of it right now, right today, but if not, then we'll see it soon.

One more thing.

Wall Street IT systems became overwhelmed today around 3:45 pm ET (15 minutes before the market closed) because of the high volume of sell orders. There are "tons" (one analyst's word) of sell orders left over that haven't been processed, and won't be until Wednesday morning.

This means that if you're planning to get out of the market "just before" the final crash, you may find yourself stuck for a couple of days. That's because there will be so many sell orders that the computers systems will be overwhelmed, and the market will shut down. You'll have to sit there watching TV as your positions are frozen and the market falls.

I strongly urge my readers to get out of the market now, before you get caught. Keep your money in cash, or in 6-month Treasury bills. Don't reenter the market until its clear that things have settled down. (27-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Shanghai stock market index falls 8.8%, pulling down Hong Kong and Europe

We're seeing more and more investor panic on the fringes.

The Shanghai Composite stock market index fell 8.8% on the February 27 session that ends at 2:30 am ET. This is Shanghai's biggest loss in ten years.

As we recently discussed, the Shanghai market has experienced an enormous bubble, especially since mid-2006, with the index almost doubling. Millions of people spending all day watching stock prices go up and down in crazy day-trading sessions, just like America in 1999. Even Chinese officials have expressed concern about a collapse.

With so much concern about a Shanghai bubble, everyone is nervous, and today's 8.8% fall may lead to further panic. Such things are impossible to predict with certainty, but this is certainly a time for caution.

The Shanghai results had a small domino effect. The Hong Kong index fell 1.8%, but other Asian stocks fell only slightly.

European stock markets are experiencing a greater effect. As of this writing (Tuesday morning Eastern Time), the European markets are still open, and have been falling uniformly 1-2%, to their lowest levels in over 4 weeks.

The reason given is that mining stocks are pulling the European market down. The reason that mining stocks are pulling the market down; the reason that mining stocks are falling is that investors fear that the Shanghai collapse will mean the end of China's meteoric growth and the concomitant demand for metals.

Wall Street hasn't opened as of this writing, but stocks are expected to open sharply lower, according to the according to the Wall Street Journal.

On Monday, there was an additional slight fall in the ABX index, that measures investor confidence in real estate mortgage repayments. This index fell at panic levels last week.

What we're seeing could be called "panic at the fringes." This panic might grow, or it might settle down again, as it has in the past.

From the point of view of Generational Dynamics, a total generational panic is to be expected.

As we've been saying since 2002, it's possible to prove that a major 1930s style Great Depression is coming, simply by noting that the stock market is overpriced by a factor of over 200%. Price/earnings ratios have now averaged 20 or more since 1995, and this alone shows that a crash is coming, since P/E ratios always fall close to 5 every decade or two, the last time in 1982.

Today, you can look at various variables -- public debt, trade balances, hedge fund market -- and note that these variables have been growing exponentially, with no sign of leveling off and falling, and no willingness in Central Banks to force them to level off and fall. You can show mathematically that this situation cannot continue.

So it's easy to prove that we're close to a major financial crisis, but it's impossible to know exactly when. When it happens, it will be triggered by a generational panic, the first since 1929. It will be a massive loss of confidence throughout the country and the world, total destruction of self-confidence, replaced by a corrosively growing fear, leading to panic, massive homelessness and bankruptcies. We're actually overdue for that, just as we're overdue for a flu pandemic.

It's impossible to predict when this panic will occur, or what will trigger it. There have been some times in the last couple of years when I've warned my readers to be especially cautious, since the markets seemed particularly nervous. This was especially true following the LiveDoor collapse a year ago, and again in May, when synchronized markets around the world fluctuated wildly. However, investors have always returned to their previous levels of starry-eyed giddiness, pushing the markets even higher.

That may happen again with the "fringe" panicking we're seeing right now. Perhaps the ABX index and the Shanghai stock exchange will settle down, and investors will return to creating an even more unbalanced and extravagant bubble than they have now.

So I'm warning my readers, once again, that this is a time for great caution. A major crash is coming sooner or later. The panic may begin tomorrow, next week, next month, or next year. The current "fringe" panicking should be watched closely. (27-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

U.N. Court blames Serbian people, but not country of Serbia, for 1995 Srebrenica genocide

This is the essence of a generational "crisis war."

In a lengthy ruling, the International Court of Justice said that the Serbian state did not order the massacre, but was responsible for failing to prevent it.

Related Articles

U.N. Court blames Serbian people, but not country of Serbia, for 1995 Srebrenica genocide: This is the essence of a generational "crisis war."... (27-Feb-07)
Women's groups protest rape as a weapon of war in Darfur: As the civil war in Darfur continues to grow more violent,... (11-Dec-06)
Kofi Annan makes strongest statement yet on Darfur: The current world's only generational crisis war may be close to an explosive climax.... (12-Sep-06)
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,... (14-Mar-06)
Survivors commemorate the genocidal 1995 Srebrenica massacre: After Rwanda, Srebrenica and Darfur, United Nations says "Never again" - again.... (12-Jul-05)
Darfur Genocide
Darfur war takes a major turn, as Sudan expels aid groups.: Oxfam, CARE, Save the Children, and numerous other aid groups... (11-Mar-2009)
Chad and Sudan may be close to a declaration of war: The peace agreement signed in March seems to be falling apart.... (18-Jun-2008)
Sudan's Darfur war expands as Khartoum comes under attack by rebels: What were they thinking? everyone's asking. But it DOES make sense.... (14-May-2008)
Ban Ki Moon blames Darfur genocide on global warming: Damn! He's blaming the Darfur crisis civil war on America!!... (19-Jun-07)
Senator Joe Biden wants to move troops from Iraq to Darfur civil war: Saying on Meet the Press that we should remove troops from Iraqi "civil war,"... (29-Apr-07)
President Bush gives Sudan "one last chance" to end Darfur genocide: But is Steven Spielberg aiding the genocide?... (19-Apr-07)
Women's groups protest rape as a weapon of war in Darfur: As the civil war in Darfur continues to grow more violent,... (11-Dec-06)
UN: Darfur became much worse "while we were watching Lebanon and Israel": Amnesty International reports that Sudan's new military buildup is precursor to a "catastrophe"... (29-Aug-06)
UN declares that Darfur war was "not genocide," in the most sickeningly cynical story of the year: If mass murders and rapes and forced relocation of millions of people isn't genocide, then what is?... (01-Feb-05)
Today's slow-motion genocide in Darfur recalls the lightning quick genocide in Rwanda in 1994: Why do these things always seem to happen in Africa? Understanding Africa's geography explains why. (22-Aug-2004)
Jesse Jackson calls for sending American troops to Darfur: You see how it works? Everyone has a war they like.... (27-Jul-04)
Darfur saga like depraved game of musical chairs: As I've said before, I've gotten good at turning off my own feelings of horror... (19-Jul-04)
Darfur genocide: The UN is completely irrelevant: It was just three months ago that Kofi Annan said "never again," referring to the 1994 Rwanda genocide.... (28-Jun-04)

"The court finds that the acts of genocide at Srebrenica cannot be attributed to the respondent's (Serbia) state organs." This was true although the Serbian government in Belgrade "should have made the best effort within their power to try and prevent the tragic events then taking shape."

The 1995 Srebrenica massacre was a shock to all of Europe. The war in Bosnia had been going on since 1992, and it was brutally genocidal from the start. Amy Chua describes the war in her book World on Fire: "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."

From the point of view of Generational Dynamics, this is what happens in crisis wars. The great majority of wars are non-crisis wars, where there are usually specific, clear objectives, such as the repatriation of land. But crisis wars are visceral, driven by panic by entire generations of people who have never seen anything like it before and are therefore are willing to accede to mass slaughter of enemy soldiers and civilians alike.

That's why the decision by the Court of Justice makes sense. Non-crisis wars come from the politicians, the governments; crisis wars come from the people. The Court of Justice found that the Serbian army in Bosnia -- the "people" -- were responsible for the massacre, not the Serbian government in Belgrade.

The Court of Justice did blame the Belgrade government for not stopping the genocide, but here I disagree with the Court; a crisis war genocide of this type cannot be stopped. It's a primal force of nature. That's why the U.N. couldn't stop the Srebrenica genocide either, and that's why the U.N. couldn't have stopped the Rwanda genocide, and can't stop the Darfur genocide today.

This is another important difference between crisis and non-crisis wars: Non-crisis wars are usually politically unpopular, and they often just peter out, or quickly end when a specific objective is reached or as a result of mediation.

But crisis wars cannot be mediated, and they don't just peter out. They continue to build in energy like a huge unstoppable rock rolling down a hill until it crashes into something with explosive force.

The climax of a crisis war is always such an explosion, something that sears the memory of the participants for decades or even centuries.

In the case of the Bosnian war, this explosive conclusion was the massacre at Srebrenica.

Tens of thousands of Bosnian Muslims had taken refuge in the Bosnian town of Srebrenica, which had been designated as a "United Nations Safe Area" in 1993.

In July, 1995, the Bosnian Serb army claimed that the Muslim army was hiding out in Srebrenica, and began shelling the town. The Serbs distributed candy to the children as a trick to separate the men from the women and children. 23,000 women and children were bussed away, while the men were held in trucks and warehouses. By the time it was over, 7,000-8,000 men were massacred. 100,000 were killed during the entire war.

Videos of the massacre are available on YouTube -- just type the word Srebrenica into the search engine. Here is one from a Muslim point of view that takes you through the major events, but doesn't contain any explicit violence. Also, here's a link to a BBC file for RealPlayer that tells the story with original BBC broadcasts.

There is a great deal of guilt among the Europeans for the Srebrenica massacre, since it was in their backyard and they didn't try to stop it either, which means, in the logic of court decision, that the European community is just as guilty as the Serbian government.

As part of its action in capturing Srebrenica, the Serbian army captured 14 Belgian U.N. "peacekeepers," and kept them as hostages. The Serbs threatened to kill the hostages, resulting in the termination of any U.N. air action to stop the massacre. Then, to get its peacekeepers back, the U.N. exchanged 5,000 Muslims it was sheltering for the 14 Belgians. The 5,000 Muslims were presumably slaughtered.

Furthermore, all of this happened just a year after the explosive conclusion to the Rwanda civil war when, in three months in 1994, one million Tutsis were raped, murdered, tortured and dismembered by their Hutu neighbors, friends and family. The U.N. had made no attempt to stop that genocide.

Today, the only full-fledged crisis war going on in the world is the genocide in Darfur.

As I wrote when the world first became came aware of Darfur in 2004, the U.N. is completely irrelevant, and that the genocide cannot be stopped until it's run its course.

That prediction has certainly come true, but when will the Darfur genocide have run its course? The answer to that question is when the climax occurs. It will have to be something so explosive, like the Srebrenica massacre or the atomic weapons blasts at Hiroshima and Nagasaki that ended World War II, that people will never forget it.

So far, nothing like that has happened in Darfur, as far as I'm aware.

File footage: Ratko Mladic and Radovan Karadzic at a peace signing in 1995. <font size=-2>(Source: BBC)</font>
File footage: Ratko Mladic and Radovan Karadzic at a peace signing in 1995. (Source: BBC)

Meanwhile, the Srebrenica story is far from finished. If you think that the bitterness between Jews and Arabs is great, then you don't know the Serbs and Muslims. Here's an example of what I stumbled across in a blog, doing research for this story: "Who are you to talk - you have no history other then begging the USA for help. The US should drop condoms on you so when you f--k with your sisters you don't multiply like animals. You are aware that it takes your mother 9 months to throw out the garbage." I toned that down a little, but you get the idea. The feelings are similar on the other side.

Given that feelings still run so deep, you won't be surprised to learn that the Serbian government is preventing the capture of Ratko Mladic and Radovan Karadzic, the Serb leaders who masterminded the 1995 massacre.

Which just goes to show the truth of that saying: One man's terrorist or mass murderer is another man's freedom fighter and hero. (27-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

China: Shanghai stock market bubble appears close to bursting

People have been pawning their homes and borrowing money from friends and family to invest in the stock market.

Shanghai stock market index, past 5 years  <font size=-2>(Source: MarketWatch)</font>
Shanghai stock market index, past 5 years (Source: MarketWatch)

Cheng Siwei, vice-chairman of the National People's Congress, has warned of investors' "blind optimism" and a stock market bubble.

The reasons are obvious when you see the adjoining graph of the past 5 years' performance of the Shanghai stock market. The index started taking off in the first half of 2006, and became practically vertical since mid-year.

Crazed day-trading Chinese investors watch minute-by-minute changes in stock prices at Beijing Stock Exchange <font size=-2>(Source: CNN)</font>
Crazed day-trading Chinese investors watch minute-by-minute changes in stock prices at Beijing Stock Exchange (Source: CNN)

There are 80.5 million open stock trading accounts, with 90,000 new accounts are opened every day, overwhelmingly "retail" accounts for ordinary citizens.

According to an analysis by the Los Angeles Times, millions of Chinese have mortgaged their homes, and borrowed money from any source available, including their family and friends, in order to day-trade stock.

This is very much like the day-trading insanity of 1999 in the United States, prior to the bursting of the Nasdaq bubble in 2000. But it's even worse in China because the Shanghai market is closed to outside investors. The result, according to Chinese analysts, is that the value of the stock market is "totally unrelated" to the companies.

I had to chuckle when I heard this last remark on CNN, because this is EXACTLY the observation that I've been making about Wall Street, and hedge funds are completely out of control.

China's entire economy has been growing into a bubble for 25 years, with a 10% growth every year for that long. This has made the entire economy dependent on this continued growth, so even a minor recession could cause social problems throughout China.

During the last year, the bubble has gone out of control, as it has with hedge funds and other aspects of the global economy.

Chinese artist Liu Xiaodong standing in front of painting <i>Hot Bed</i>. The painting sold for $2.5 million. <font size=-2>(Source:</font>
Chinese artist Liu Xiaodong standing in front of painting Hot Bed. The painting sold for $2.5 million. (Source:

In China, it affects everything, even art. Paintings by Chinese artists are selling in the millions, and prices are growing just as quickly as the Shanghai stock market index.

One person says that, bubble or no bubble, the skyrocketing prices are OK. "Even if it does crash, everything goes in cycles, and out of that will come something new. Chinese art is not going away," she says.

Obviously, these people are in for a great deal of pain, but in the case of China it's much more ominous than that.

From the point of view of Generational Dynamics, 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 over 100 million migrant workers (15-20% of the entire workforce), mostly peasants who have lost their farms to corrupt land deals by CCP officials, who take any jobs they can find in the cities and send money back to their families in vast poverty-stricken rural areas. Exactly what event will trigger this civil war cannot be predicted, but it could happen next week, next year or after, but will probably happen sooner rather than later. (26-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

How to interpret and price the ABX derivative table. (Corrected)

As investors panic over the rapid housing bubble collapse in the subprime mortgage loan market, analysts are closely watching the the daily postings of the ABX index as they appear around 3 pm ET each business day.

The collapse began in December, accelerated slightly in January, and turned to total panic at the beginning of February.

Here is the complete table, posted on Friday, February 23, 2007:

23-Feb-07 Overview
|Index   Series    Version   Coupon RED ID   |Price|High  |Low	|
|----------------- --------- ------ ---------|-----|------|-----|
|ABX-HE-AAA 07-1   7       1   9    0A08AHAC6|99.15|100.09|99.15|
|ABX-HE-AA 07-1    7       1  15    0A08AGAC8|99.15|100.09|99.15|
|ABX-HE-A 07-1     7       1  64    0A08AFAC0|92.50|100.01|92.50|
|ABX-HE-BBB 07-1   7       1 224    0A08AIAC4|75.21| 98.35|75.21|
|ABX-HE-BBB- 07-1  7       1 389    0A08AOAC1|68.50| 97.47|68.50|
|ABX-HE-AAA 06-2   6       2  11    0A08AHAB8|99.15|100.12|99.15|
|ABX-HE-AA 06-2    6       2  17    0A08AGAB0|99.15|100.12|99.15|
|ABX-HE-A 06-2     6       2  44    0A08AFAB2|92.69|100.12|92.69|
|ABX-HE-BBB 06-2   6       2 133    0A08AIAB6|76.80|100.58|76.80|
|ABX-HE-BBB- 06-2  6       2 242    0A08AOAB3|69.39|100.94|69.39|
|ABX-HE-AAA 06-1   6       1  18    0A08AHAA1|99.54|100.38|99.54|
|ABX-HE-AA 06-1    6       1  32    0A08AGAA9|99.76|100.73|99.76|
|ABX-HE-A 06-1     6       1  54    0A08AFAA7|96.20|100.51|96.20|
|ABX-HE-BBB 06-1   6       1 154    0A08AIAA4|88.50|101.20|88.50|
|ABX-HE-BBB- 06-1  6       1 267    0A08AOAA2|85.17|102.19|85.17|

Here's the definition of the various columns:

Now, let's take an example. Let's suppose that you're a bank, and you have $10 million in high-grade "AAA" mortgage loans on your books, and another $10 million in "BBB-" subprime mortgage loans. You're afraid that some of your borrowers won't be able to pay, and you want some insurance.

If you buy that insurance on the day that the index is launched, July 19, 2006, then you pay only the Coupon price. In the case of the highest rated "AAA" loans, the Coupon value is "11", and so you pay (0.11% x $10 million), or $11,000 for $10 million in "AAA" loans.

The rest of your loans are "BBB-" quality, and there the Coupon value is "242", and so you pay (2.42% x $10 million), or $242,000 for the same kind of insurance on your "BBB-" loans. Quite a difference.

That's what happens on the first day (July 19, 2006), because the Price index is always 100.

Index price of ABX-HE-AAA 06-2 from August 2006 to Feb 23, 2007 <font face=Arial size=-2>(Source:</font>
Index price of ABX-HE-AAA 06-2 from August 2006 to Feb 23, 2007 (Source:

But now let's suppose that you waiting until this past Friday, February 23, 2007, to buy the insurace. (These are still loans that were granted in the second half of 2006, and so the "06-2" version is still what we want.)

On Friday, February 23, the price index for ABX-HE-AAA 06-2 (from the table above) was 99.15. You still have to pay the $11,000 Coupon price, but you also have to pay an additional ((100% - 99.15%) x $10 million) = $85,000. So, if you bought the insurance on Friday, you would pay a total of ($11,000 + $85,000) = $96,000.

Index price of ABX-HE-BBB- 06-2 from August 2006 to Feb 23, 2007 <font face=Arial size=-2>(Source:</font>
Index price of ABX-HE-BBB- 06-2 from August 2006 to Feb 23, 2007 (Source:

Now, what about the subprime "BBB-" tranch? On Friday, February 23, the price index for ABX-HE-AAA 06-2 (from the table above) was 69.39. You still have to pay the $242,000 Coupon price, but you also have to pay an additional ((100% - 69.39%) x $10 million) = $3,061,000 So, if you bought the insurance on Friday, you would pay a total of ($242,000 + $3,061,000) = $3,303,000.

Here's a summary of all four computations:

Date 	   Index           Coupon Price  Total payment computation
---------  ---------------- ---- ------  --------------------------------------------
19-Jul-06  ABX-HE-AAA 06-2   11  100.00  $10M x (0.11% + (100%-100.00%)) =    $11,000
19-Jul-06  ABX-HE-BBB- 06-2 242  100.00	 $10M x (2.42% + (100%-100.00%)) =   $242,000

23-Feb-07 ABX-HE-AAA 06-2 11 99.15 $10M x (0.11% + (100%- 99.15%)) = $96,000 23-Feb-07 ABX-HE-BBB- 06-2 242 69.39 $10M x (2.42% + (100%- 69.39%)) = $3,303,000

What this computation shows is that even hiqh quality tranches are being affected. The price for the "AAA" quality insurance went from $11,000 to $96,000, a factor of a little less than 9. The price for the "BBB-" tranch insurance went from $242,000 to $3,303,000, a factor of 14. Both of these changes are exceptionally high.

What makes them have the appearance of a "panic," though, can be seen from the two graphs shown above. As you can see, the huge drop in both these indexes has occurred mostly in the last couple of weeks.

Generational Dynamics has been predicting since 2002 that America is headed for a new 1930s style Great Depression. As happened in 1929, this crash will begin with a panic, with the stock market falling to Dow 3000-4000. This panic might occur tomorrow, next week or next year. There's no way to predict exactly what will trigger it, but the current collapse in the ABX index bears close watching. (25-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

This week's idiot of the week: Israeli defense minister Peretz

What the hell was this guy thinking?

Israel's Defense Minister Amir Peretz (right) looks through binoculars with the lens cap on. On the left is the army's new Chief of Staff, Lt. Gen. Gabi Ashkenazi. They're reviewing a military drill in the Golan Heights. <font size=-2>(Source:</font>
Israel's Defense Minister Amir Peretz (right) looks through binoculars with the lens cap on. On the left is the army's new Chief of Staff, Lt. Gen. Gabi Ashkenazi. They're reviewing a military drill in the Golan Heights. (Source:

Israeli Defense Minister Amir Peretz was photographed and videotaped on Friday looking through binoculars with the lens cap on.

CNN showed him raising the binoculars to his eyes three separate times -- each time with the lens cap on.

Do you know who this guy is? He's Israel's Defense Minister.

This is the guy who was in charge of Israel's military last summer, when Israel panicked and launched the Lebanon war within four hours, with no plan and no objectives.

In the scene photographed above, Peretz is reviewing a military drill in the Golan Heights. The army's new Chief of Staff, Lt. Gen. Gabi Ashkenazi, is explaining what's going on and pointing out the manoeuver's fine points. Several times, Peretz raises his binoculars and looks through them, but of course he can't see anything because the lens cap is on.

Is this guy a total moron? Has he never used binoculars before? Can he not ask what the problem is?

It never ceases to amaze me how ignorant politicians are about subjects that they're supposed to be their jobs.

I've pointed out several times on this web site how journalists and politicians are looking more and more like complete idiots.

ABC's George Stephanopoulos looked like an idiot in November because Jordan's King Abdullah had to tell him five times of the importance of the Israeli/Palestine situation, but he was still clueless. NBC's Chris Matthews exhibited vitriolic partisanship and sheer stupidity after President Bush's speech, making it clear that he knows nothing about such things as the Iran/Iraq war or the Truman Doctrine. CNN's Michael Ware, talking about the Iraq war, said "If this isn't a civil war, then I'd hate to see a real civil war," apparently completely unaware that there is a real civil war going on Darfur, and that the Iraq war is nothing like that.

The stupidity of politicians came to public attention in November, when Jeff Stein, national security editor for Congressional Quarterly, wrote an article about how he'd inverviewed Silvestre Reyes, whom Nancy Pelosi had selected to be chairman of the House Intelligence Committee, and Reyes didn't even know whether al-Qaeda was a Sunni or Shia organization. And this isn't a political thing: Stein found the same level of ignorance across parties, even among analysts who were supposedly experts on the subject they couldn't answer questions about.

Now, if you don't know that al-Qaeda is a Sunni organization, then you cannot possibly know anything about what's going on in Iraq. It's impossible. And Reyes has been on the House Intelligence Committee for five years, since 9/11. I don't know how it's possible to be involved in that subject for five years without accidentally learning something, but he and other politicians succeeded in learning nothing.

And now we have the dysfunctional defense minister, Amir Peretz, of the dysfunctional Israeli government, who can't even figure out how binoculars work.

When you see any of these politicians on television, pretending to know something -- just remember this: they're idiots. (24-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Vice President Dick Cheney, in Australia, criticizes China's military buildup.

Cheney repeats Donald Rumsfeld's similar warning in Singapore in 2005.

In June 2005, Secretary of Defense Donald Rumsfeld gave a speech at a conference in Singapore, including comments on China's rapid and accelerating militarization:

"[A DOD report] concludes that China’s defense expenditures are much higher than Chinese officials have published. It is estimated that China’s is the third largest military budget in the world, and clearly the largest in Asia.

China appears to be expanding its missile forces, allowing them to reach targets in many areas of the world, not just the Pacific region, while also expanding its missile capabilities within this region. China also is improving its ability to project power, and developing advanced systems of military technology.

Since no nation threatens China, one must wonder: Why this growing investment? Why these continuing large and expanding arms purchases? Why these continuing robust deployments?

China criticized Rumsfeld for this statement as being a "war-monger." This shows what a screwed up world we live in, when China can spend exponentially increasing amounts of money on massive weapons systems, and it's Rumsfeld rather than China who's the "war-monger."

Vice President Dick Cheney reads a carefully worded statement expressing concern about the rise of China's military. <font face=Arial size=-2>(Source: BBC)</font>
Vice President Dick Cheney reads a carefully worded statement expressing concern about the rise of China's military. (Source: BBC)

Now, almost two years later, Vice President Dick Cheney gave a speech on Friday morning in Australia, containing comments on the same issues. Here is the text of Cheney's carefully worded statement:

"Later today I'm going to meet with some members of the Australian military. My purpose is simply to thank them and their comrades for extraordinary service in a time of testing. Americans know that for this country, "standing by your mate when he's in a fight" are more than words in a song, and they signify a way of life. Having Australia's friendship makes my country very grateful and very proud.

As leading democracies, Australia and the United States feel a deep sense of responsibility for security and peace in our world. The cooperation between our governments has risen to a new level, with stronger ties of defense and counterterrorism, and much broader cooperation on intelligence and information sharing. We're working closely on the Joint Strike Fighter and on Ballistic Missile Defense. Together with other nations, we founded the Proliferation Security Initiative, with the urgent business of keeping nuclear technology out of irresponsible hands.

To this end, the six-party process has produced agreement on specific actions that will bring us closer to a Korean Peninsula free of nuclear weapons. We go into this deal with our eyes open. In light of North Korea's missile tests last July, its nuclear test in October, and its record of proliferation and human rights abuses, the regime in Pyongyang has much to prove. Yet this agreement represents a first hopeful step towards a better future for the North Korean people.

China has played an especially important role in the six-party process, because the Chinese understand that a nuclear North Korea would be a threat to their own security. We hope China will join us in our efforts to prevent the deployment and the proliferation of deadly technologies, whether in Asia or in the Middle East. Other actions by the Chinese government send a different message.

Last month's anti-satellite test, and China's continued fast-paced military buildup are less constructive and are not consistent with China's stated goal of a "peaceful rise." For our part, the United States and Australia have the same hopes for the future of China -- that its people will enjoy greater freedom and prosperity; that its government will be a force for stability and peace in this region."

Cheney was referring in general to China's rapidly growing buildup in high-tech military weapons clearly targeting Taiwan and the United States. These include a new generation of submarines fitted with nuclear-tipped ballistic missiles capable of reaching any American city.

This buildup is consistent with a 2005 warning given by top-level Chinese army officer General Zhu Chenghu if America interfered with Taiwan: "If the Americans are determined to interfere [then] we will be determined to respond. We . . . will prepare ourselves for the destruction of all of the cities east of Xian [a city in central China]. Of course the Americans will have to be prepared that hundreds . . . of cities will be destroyed by the Chinese."

For about ten years, China's military strategists have been discussing "acupuncture warfare": Striking at key points of vulnerability where a single jab would paralyze the entire nation. Such acupuncture points include the US electricity grid, the Internet, oil supply routes, and its communications and spy satellites.

A month ago, in a test clearly targeting the United States, China successfully tested an anti-satellite weapon by blowing one of its own aging satellites out of the sky. It's believed that, in case of war, China could use this technology to destroy 50-100 American satellites within a few hours.

That's why Cheney particularly mentioned this anti-satellite test in his speech. If China has only peaceful intentions, why is it testing technology whose only apparent use is to destroy American satellites?

China is in the middle of New Year's celebrations, and so there was no official Chinese response to Cheney's statement.

During the interview with Lin Shaowen, the BBC showed file footage of Chinese military exhibitions. <font face=Arial size=-2>(Source: BBC)</font>
During the interview with Lin Shaowen, the BBC showed file footage of Chinese military exhibitions. (Source: BBC)

But the BBC contacted Lin Shaowen, deputy director of the English service of China Radio International, and interviewed him by phone. Here's what he said:

"Well this sounded striking to us at this moment, because while at the same time he was recognizing China's efforts in bringing the six parties together - and achieving the FIRST MAJOR BREAKTHROUGH [raised voice] on substantial issues in the six party talk on the N. Korea nuclear issue, at the same time he was laboring china as again a potential threat or again a potential enemy to be contained. so far, at the moment, because of the three??? festival holidays, there's no immediate comment from the Chinese Foreign Ministry in response to Mr. Cheney's remarks made this morning in Australia.

But I can only refer you back a statement by a spokesman made 15 days ago, when he said simply, 3 elements: that test last month was not targeting any country, posing no threat to any country, and violate no international treaty. So he made it simple.

When I discussed with my colleagues the remarks made by Mr. Cheney, the only interpretation could be that he was trying to find an excuse to re-arm for military redeployment - especially in the tiny island of Guam, which is quite close to this side of the Pacific, because the United States very much has in mind of building up militarily in this part [of the world]....

This may actually give Australia and countries like this a very awkward time in making a painful decision of fighting EITHER the United States or China. The world is painted as black and white. Actually, these two countries could sit together.

This is pretty much a boilerplate response. The reference to Guam was probably made because Cheney's next travel stop will be Guam.

However, notice the following: Lin Shaowen does not deny that China is planning for war with America. He could have said, "Cheney is completely wrong; we would never want to have a war with the United States." No one from China ever says anything like that. However, the Chinese frequently say that a war is certain if America interferes with China's intention to reunite Taiwan with mainland China. Of course, the U.S. would be required to "interfere," since we're bound by a defense agreement with Taiwan.

Another thing to notice is this sentence from Lin's response: "This may actually give Australia and countries like this a very awkward time in making a painful decision of fighting EITHER the United States or China." This sounds to me like a warning to Australia that in any upcoming war, they should side with China rather than with the U.S. That, of course, is not going to happen.

Neville Chamberlain, returning from a 1938 meeting with Hitler, promising "peace in our time," holding up a signed agreement
Neville Chamberlain, returning from a 1938 meeting with Hitler, promising "peace in our time," holding up a signed agreement

I found it interesting that, as they were broadcasting Lin's live telephone interview, the BBC showed file footage of Chinese military exhibitions. (See screen shots above.) It's well worth remembering that the British have been through this before.

In 1938, British Prime Minister Neville Chamberlain returned from a meeting with Hitler and declared:

"My good friends, for the second time in our history, a British Prime Minister has returned from Germany bringing peace with honour.

I believe it is peace for our time.

Go home and get a nice quiet sleep."

It later turned out that Hitler was planning war with Britain on the same day that he signed that agreement. The fact that the BBC was showing Chinese military footage shows that, unexpectedly, the BBC producers may have learned something after all.

Finally, I'd like to quote from the end of Cheney's speech, to make a point about the wrong view of history:

Ladies and gentlemen, our two countries have great objectives before us, and our alliance is as important now as it has ever been. One of America's great historians, David McCullough, has noted that "among the most difficult and important concepts to convey in teaching or writing history is the simple fact that things never had to turn out as they did. Events past were never on a track. Nothing was foreordained any more then than now."

Whether in Battle of Hamel in 1918, or 65 years ago in the Coral Sea, Americans and Australians were not mere witnesses to the unfolding of events. They were acting -- bravely, decisively, and together -- to turn events toward victory. And so much of the life we know today is a credit to the decisions and the actions of those who came before.

Our generation, here and now, is also writing history. Present events are not on a track. In the war on terror, one side will win and the other will lose. Civilization will continue its upward course, or go in different direction.

It can be sobering to take stock of all the serious work that needs doing; to realize all the duties that fall to us in a perilous time. Yet it's no reason to be afraid. Rather, it's a reason to be confident. We are not hostages to fortune. Our forbears were not the sort to be intimidated, or worn down by adversaries -- and neither are we. Today, as before, Australians and Americans are people of determination, of moral courage, and decency. We are strong countries that have sacrificed greatly for peace and freedom at home and on distant shores. Our purposes in this world are good and right.

So we have made our decision. Once again, we choose to face challenges squarely. And once again, we go forward -- as allies, as comrades-in-arms, and, above all, as friends.

This view of history that major wars can be prevented or avoided is simply wrong, as Generational Dynamics has shown. In fact, it's very easy to show that great genocidal wars are unavoidable: Just note that the world population grows faster than the world food supply. Huge genocidal wars like World War II have a specific purpose: To kill enough people so that there'll be enough food for the survivors. But after a while, the population catches up to and surpasses the food supply again, and it's time for another genocidal war.

Generational Dynamics predicts that we're headed for a Clash of Civilizations World War, and that a major component will be a genocidal war between China and the United States. This war could begin next month, next year, or thereafter, but the rapidly rising militarism of China means it can't be too far off.

Here's what I keep telling people: What's going on in the world is like a tsunami that was launched decades ago, and can't be stopped or affected by any politician. You can't stop what's going to happen, but you can prepare for it. Treasure the time that you have left, and use it to prepare yourself, your family, your community and your nation. (23-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

CNBC reports that subprime mortgage ABX index is crashing

They worry whether the subprime mortgage problems will spread to other parts of the economy

Mainstream journalists and economists are getting very worried about the apparently unstoppable crash in the ABX index that we've been following.

CNBC this (Friday) morning reports that the index has already fallen very sharply from yesterday's levels. Official figures won't be available until late this afternoon.

The pundits and analysts expressed two major worries:

Here is a word of caution: When the journalists and pundits get concerned about something, that may well mean that it's disappearing as a problem. According to this philosophy, the ABX should start turning up again soon.

However, the fundamentals are far too weak to make this assumption. Some 23 mortgage financing firms have gone away since December. Liquidity is decreasing, and credit rules are tightening, meaning that money is much less available to bail out subprime mortgage borrowers, so the number of defaults and foreclosures seems certain to continue climbing.

Here's one bit of comic relief: We're beginning to see signs of the "lipstick reaction": In the retail sector, some investors are buying accessory and footware stocks, because during a recession women purchase lipstick and low-cost shoes and accessories to feel good. (23-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Global markets skyrocket to all-time highs, while housing keeps tanking

Another mortgage lender, NovaStar, reveals that it's in trouble.

Mortgage lender NovaStar Financial Inc. announced a $14.4 million loss for the fourth quarter of 2006 on Wednesday. This was expected, but what really spooked the market was the additional unexpected announcement that NovaStar expects to "recognize little, if any, taxable income" for the next four years (though, in follow-up announcement, they point out that hey, we're still going to make some non-taxable income.)

Panicking investors sold off NovaStar, causing the stock to fall 41% in one day.

Index price of ABX-HE-BBB- 06-2 from August to Wednesday, Feb 21 <font face=Arial size=-2>(Source:</font>
Index price of ABX-HE-BBB- 06-2 from August to Wednesday, Feb 21 (Source:

In addition, as shown in the adjoining graphic, the ABX housing mortgage default loan index continues its precipitous collapse.

We've been discussing the collapse of this index in the past. This is a "derivative" index that allows an investor to buy a kind of "insurance" that a mortgage loan will be repaid. The dramatic fall of the index measures the rapidly decreasing faith that investors have that subprime mortgage borrowers will actually repay their mortgage loans. The subprime loans are made to borrowers who payer a higher interest rate because they have poor credit.

The collapse of this index value reflects the continuing bad news of increases in late payments and foreclosures on these loans. The signs indicate that the rate of foreclosures will continue to increase through 2007.

Here's an example to show what this means to real investors: A month ago, you could have purchased an ABX-HE-BBB- 07-1 "insurance policy" on a $10 million subprime mortgage loan for $389,000. Today, the same insurance policy costs $1.1 million.

Meanwhile, the TV financial analysts are still burbling about how great the global financial system is going.

One especially giddy report at 10 am Thursday on CNBC told us that "We're in the middle of a global rally." Stock markets around the world are reaching all-time highs: Mexico and Brazil in Latin America, Germany in Europe, and Japan and Korea in Asia. The reporter chortled that China would also be at an all-time high, but they're closed this week for the new year's celebrations.

Lovely CNBC anchor Rebecca Jarvis points to the Nasdaq all-time high in 2000, to show how today's value is around 50%. <font face=Arial size=-2>(Source: CNBC)</font>
Lovely CNBC anchor Rebecca Jarvis points to the Nasdaq all-time high in 2000, to show how today's value is around 50%. (Source: CNBC)

That was followed by another bubbly report: The Nasdaq index is at at a six-year high!! At 50% of it's all time high in the year 2000!!

It never even occurred to anyone to ask the question: Well, if there was a crash six years ago after an enormously skyrocketing bubble stock market, can't it happen again today? I mean, we keep having stock market rally after stock market rally, not just on Wall Street, but around the world, even though we're seeing a segment of the housing mortgage market collapse before our eyes. It's the same as it was in 2000 ... and in 1929. Isn't it? (22-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Generational Dynamics web site down on Tuesday evening 20-Feb - Please resend e-mail.

Ironically, web site host "" just won a reliability award.

This web was down for several hours on Tuesday evening, February 20, 2007.

In addition, all e-mail messages sent to me (at any e-mail address) from 6 p.m. ET Tuesday to 8 a.m. ET Wednesday apparently have been lost.

Please re-send any e-mail messages sent during that time.


I'll take this opportunity to briefly mention some recent changes to this web site.

I've changed the format of the "Permanent Link" URL for an article so that it's shorter, and so that it goes to a page containing that article alone. This makes this web site more consistent with other web log sites on the internet. However, I've made certain that the old URLs still work, so if you've saved a pointer to a specific article, it's still valid for the foreseeable future.

In addition, I'm experimenting with running some ads. Hopefully these will not interfere with reading the articles.

Web site readership has been increasing in the last couple of months. I appreciate all my readers, and for the opportunity to present the information on this web site as a public service.

I'm still managing to keep up with all e-mail questions sent to me, though it sometimes takes a couple of days for me to get back with a response, depending on volume of e-mail. So if you have a question, by all means send me an e-mail message, or use the "Comment" link at the top of this page.

If you want to have a more open debate, you can do so in the "Objections to Generational Dynamics" thread of the Fourth Turning forum.

And once again, if you sent me anything in the last 24 hours, please send it again.


The outage was caused by the web site hosting company, "," which changed its name from Interland in March 2006. Even "'s" own sales web site was down.

Ironically, "" just won a reliability reward for January, 2007.

Which reminds me of that old saying: It's nice what you did for me in the past, but what have you done for me lately? (21-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Japan's real estate crash may finally end after 16 years

To see where America is going, look what happened in Japan.

During the 1980s, real estate prices in Japan skyrocketed in a huge real estate and stock market bubble. Both bubbles collapsed starting on January 4, 1990.

Economist Michael ("Mish") Shedlock in his blog has provided a graphical comparison to America's current real estate bubble to Japan's real estate bubble of the 1980s:

Japan nationwide land prices, 1979-2004
Japan nationwide land prices, 1979-2004

The above graphic shows Japanese land prices since 1979. The blue annotations are the things the Shedlock imagined people were saying in Japan at each point in the bubble. The red annotations show where in the Japanese bubble the American bubble is at different times.

He first posted this graph in Spring of 2005. At that time there was only one red label, the one for Spring 2005 (duh!).

He's updated it every six months or so. The latest update appeared in September, 2006.

As you can see, we have a very long way to go in our own real estate bubble crash.

It's interesting to look back over the last 20 years to news articles that came out at different times concerning Japanese land prices.

So Shedlock's graph represents something real, not a manufactured story.

However, there's more to be told in comparing Japan to America.

Recall the reason that America's 1990s stock market bubble occurred in 1995: That was precisely the time that the generation of risk-averse senior financial managers who had lived through the 1930s Great Depression all disappeared (retired or died), leaving behind new risk-seeking financial managers. Thus, the new bubble occurred about 66 years after the 1929 crash.

Nikkei 225 Index -- Tokyo Stock Exchange -- 1984-2007 and 1914-2007.
Nikkei 225 Index -- Tokyo Stock Exchange -- 1984-2007 and 1914-2007.

Now take a look at the adjoining graphs. The top graph shows the Tokyo Stock Exchange's (TSE's) most recent stock market crash. The crash began on January 4, 1990. The Nikkei index had been 38915, and fell to a low of 7607 on December 31, 2003. That's an 80% fall over a 16 year period.

Now here's the point: This wasn't the TSE's first major stock market crash. The TSE's previous major stock market crash occurred in 1919, as shown by the lower graph. Then, 65 years later, the next stock market bubble began in 1984.

Did you get that? Wall Street: Crash in 1929, new bubble in 1995, 66 years later; Tokyo Stock Exchange: Crash in 1919, new bubble in 1984, 65 years later.

Once again, you can see Generational Dynamics in action. A new bubble occurs as soon the generation of people who lived through the last crash are gone.

I've said many times on this web site that analysts, journalists, and pundits are totally blind to even the simplest generational relationships, no matter how obvious they are.

Well, this one is about as obvious as it can get. This is the first time I've been able to track down the historical Nikkei index values, but once you have them, these generational relationships are pretty obvious. (20-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Al-Qaeda resurging in Afghanistan and Pakistan

Al-Qaeda's greatest threat is to Britain and Europe.

CNN's terrorism expert Peter Bergen, appearing on CNN International on Monday, gave a lengthy report on al-Qaeda's resurgence in Afghanistan and Pakistan. Here's what he said (sometimes paraphrasing):

Top: CNN terrorism expert Peter Bergen.  Bottom: File footage of al-Qaeda training camp. <font face=Arial size=-2>(Source: CNN)</font>
Top: CNN terrorism expert Peter Bergen. Bottom: File footage of al-Qaeda training camp. (Source: CNN)

"There are about 2000 foreign al-Qaeda fighters in the region along the Pakistan-Afghan border. They're in small training camps that can't be detected from the air -- 10 to 20 dedicated al-Qaeda fighters in each one, training in such things as burning bombs. The July 7, 2005, London subway bombing attacks are increasingly seen as an al-Qaeda operation, not just a bunch of guys who got radicalized by visiting madrassas in Pakistan. The guys actually trained in Afghanistan, and later met with al-Qaeda leaders on the Pakistan-Afghan border.

If this were a Mafia organization they'd be out of business, because all you have to do is take out the leadership. But al-Qaeda is a much stronger organization, because it has strong religious beliefs and it's also derived a great deal of strength from insurgencies.

And we've got two major insurgencies going on, one on the Afghan-Pakistan border, and the other one in Iraq. According to the U.S. Marines' assessment, which was leaked to the Washington Post in December, al-Qaeda actually controls Anbar province, which is a huge province in Western Iraq. And al-Qaeda now has a very strong presence in the tribal areas along the Afghan-Pakistan borders. So unfortunately this group, where the conventional wisdom is that they were sort of out of business, unfortunately is back in business.

What that means for American security isn't really clear. What it means for British security is very clear already. They've launched one attack in July 2005, an al-Qaeda operation, they also tried to bring down ten American airliners in August of last year - that plan luckily didn't work out. But the head of the Defense Intelligence Agency recently testified that that plan was directed from al-Qaeda in Pakistan."

From the point of view of Generational Dynamics, many of Britain's young Muslims have set up a "Hero/Prophet" relationship with the radical clerics in Pakistan. When I described this relationship at length in an article in November, I pointed out that this relationship is the visceral basis by means of which new genocidal crisis wars begin. There's an emotional connection between the elder Prophet generation (the idealistic generation born after the last crisis war) and the impatient college age Hero generation (the soldiers who will be fighting the new crisis war).

At the time that I wrote that article, it was unclear how that relationship was structured. This new information makes it very clear that the young British Muslims are particularly connected to the al-Qaeda leadership on the Afghan-Pakistan border. The 2005 London subway bombing is a very powerful recruiting tool for al-Qaeda leaders to use with these disaffected young men, particularly because it's now clear that the London subway attacks and the 9/11 attacks were masterminded by the same generational Prophet generation, and the young men are more than willing to commit "altruistic suicide," in order to become Heroes to other radical Muslims.

The CNN anchor, Jim Clancy, then asked why Pakistan hasn't taken these training camps out.

"Well, Pakistan is in a very difficult situation. They've gone in there in the past and they've lost hundreds of their soldiers going after militants in the tribal areas. They've now conducted some peace agreements with a number of the militants in these tribal areas. These have not been particularly useful in terms of security in Afghanistan. Because of these peace agreements, we've seen a surge of attacks in Afghanistan coming out of these tribal areas into Afghanistan, against Afghan targets, U.S. military and Nato targets. So neither policy has really worked; appeasement hasn't really worked with these militants, nor has the strong military action that the Pakistani military took in the last several years. So I'm not sure what the answer is. There is definitely a problem."

Then Jim Clancy asked: "Should we be worried about this? Should we be demanding the SOMEBODY come up with a solution?"

Note that this is a very interesting way of phrasing the question. Clancy is a Boomer (America's current Prophet generation), and like all Boomers, he's waiting for someone else, anybody else, to do something. This was similar to Senator Richard Lugar's suggestion Sunday that Republicans and Democrats ought to form a committee to figure out what to do about Iraq. All of these Boomers, Republican and Democrat alike, have no skills except to bicker, and have no idea how to govern. Really, the only person in Washington who's trying to govern is President Bush, but the rest of the Boomers have made it their full time job to make governing impossible.

So, here's what Peter Bergen said:

"We should be very worried. The 9/11 attack came out of the area, the Cole attack in Yemen, embassy attacks in 98 in Africa, and if this group is reorganizing then that's a big problem. And it's not just a problem for the United States; it's also a problem for countries in Nato, it's a problem for Afghanistan. It's also really a problem for Pakistan. I mean just in the last month we've had six suicide attacks in Pakistan itself, coming from the militants who are regrouping in this area."

The significance of all this is that it presents a very different picture of the "war on terror" than most people think. Most people view terrorists as a bunch of roving criminals, blowing themselves or airplanes up willy-nilly. What we've been seeing more and more is an al-Qaeda plan to coalesce into a major fighting force, and to install itself as the government of an actual country, whether Somalia, Egypt, Palestine, Iraq, Afghanistan or Pakistan.

I'll close this article with some pure speculation.

A reader (not an American) has written to me saying that Americans are lacking in resolve and that our entire foreign policy is based on oil. He then suggested that what America should do is abandon our support for Israel and ally ourselves with Iran, in order to keep the oil flowing. "I think we all know that Americans would throw Israel overboard," he wrote, "if it were a choice between Israel and keeping our car gastanks full and not waiting in riotous gas lines and rationing." I can only shake my head at this bizarre, offensive view of Americans which, unfortunately, is shared by a lot of leftist non-American anti-Americans.

I wrote back to him that America could not "throw Israel overboard" because Americans have a deep spiritual connection to Israel, because of our defense of freedom of religion, and because America has defense agreements with Israel and a number of other countries, and those treaties cannot be abrogated.

However, this whole discussion raises an interesting question: Are there any circumstances where we might be allied with Iran in the Clash of Civilizations World War?

From the point of view of Generational Dynamics Forecasting Methodology, there are trend events that can be predicted with absolute certainly, although with a lack of certainty as to timing. Other predictions have a much narrower time frame, but are only probabilistic. A lot of the theoretical work that I've been doing on this web site and in the "Objections to Generational Dynamics" thread of the Fourth Turning forum is to improve the Forecasting Methodology to produce more accurate forecasts in narrower time frames. This is generally done by relating long-term trends to recent news events, as I've been doing many times (without always saying so) on this web site.

Now, the Clash of Civilizations World War is an unavoidable trend event that will occur with absolute certainty.

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

The little "conflict risk graphic" that appears on the home page of this web site lists what are, in my opinion, the eight greatest risks to triggering this world war in the near future. It might be a war in the Mideast, or it might be a financial crisis that completely destabilizes China and other parts of Asia. The war is coming with certainty; the scenario leading up to the war can only be estimated probabilistically, since it depends on many chaotic events (in the sense of Chaos Theory).

In the past, I've speculated that Iran would be allied with China against us. There's no doubt that China will be our enemy, because that trend has been building for decades. But I've always felt a little discomfort in including Iran in that category because (a) the Iranian people are much more pro-American than their leaders, and (b) the Iranian people are much less anti-Israel than their leaders. There's no doubt that the mullahs and Iranian president Mahmoud Ahmadinejad would like to "wipe Israel (and America) off the map," but that's far from true of the Iranian people.

During ordinary times, a country has some freedom to be everyone's ally, even play one ally against another. But when a massive war begins, everyone is forced to choose a side. It's rare that any country can manage for long to remain "neutral," as Switzerland did in World War II. Events are rarely that kind. Instead, it becomes necessary to ally with one side and to attack (and be attacked by) the other side.

The resurgence of al-Qaeda is significant because al-Qaeda is as much an enemy of Iran as it is of the United States.

So the speculation is that Iran might end up siding with America and Israel and Russia and India against al-Qaeda, Pakistan and China.

From the point of view of Generational Dynamics, we're headed for a Clash of Civilizations World War with nearly mathematical certainty. As we head for war, we can only watch and wait to see what events trigger the surprises and the conflicts that eventually lead to that war. (19-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Anger and confusion dominate the Sunday news talk shows

Democrats are agitated and enraged, nervous Republicans are crossing their fingers.

A week of Congressional bumbling that seems to have accomplished little and satisfied almost no one ended with Sunday talk shows that were equally useful.

The Senate this past week failed to pass that "non-binding resolution" opposing the President's "surge" policy. Finally it passed in the House, and then went back to the Senate, where it failed again.

Democratic party Senators were almost crazed with rage, once the resolution failed to pass, reminding me again of the vitriolic hysteria of NBC's Chris Matthews.

The Republicans didn't get hysterical, but it was obvious that they were just as confused and depressed as the Democrats.

Republican Senator Richard Lugar of Indiana on Face the Nation on Sunday. <font face=Arial size=-2>(Source: CBS)</font>
Republican Senator Richard Lugar of Indiana on Face the Nation on Sunday. (Source: CBS)

Republican Senator Richard Lugar from Indiana, who voted against the non-binding resolution, didn't say anything about supporting the President's plan on Face the Nation. He advocated the development of a bipartisan plan for Iraq with the President and leaders from both parties. He particularly referred to the joint bipartisan effort in the 1980s where Democrats and Republicans reached an agreement to save the social security system.

I've written about this several times before. In fact, the Republicans and Democrats did get things done in the 1980s. The Democrats and Republicans got together and passed a tax reform law. They 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. Even as late as 1996, Democratic President Bill Clinton cooperated with the Republican congress to eliminate the welfare entitlement.

However, those things happened with the nation's leaders were in the G.I. and Silent generations, the generations that survived World War II. Today's leaders are from the Boomer generation, and the Boomer Democrats and Republicans are so incompetent that they can barely agree on anything. The only thing about it that's funny is that they can't even agree enough to vote themselves a pay raise.

So Senator Lugar's wistful hope of a bipartisan agreement to save the day is completely unrealistic, and won't happen.

Sen. Ted Kennedy, screaming at the top of his lungs in Senate on Saturday. <font face=Arial size=-2>(Source: Fox News)</font>
Sen. Ted Kennedy, screaming at the top of his lungs in Senate on Saturday. (Source: Fox News)

Democratic Senator Ted Kennedy from Massachusetts was screaming hysterically at the top of his lungs on the Senate floor on Saturday, saying the following:

"We on this side are interested in protecting American servicemen from the crossfire of a civil war. Some on the other side are more interested in protecting the President from a rebuke."

Kennedy is essentially saying that the Republicans and the President are guilty of treason because they're allowing American soldiers to be killed gratuitously, just to keep the non-binding resolution from passing. Apparently Kennedy believes that the President would permit any number of our soldiers to be killed, rather than be embarrassed by a non-binding resolution.

This doesn't make much sense, though. Did passing the non-binding resolution in the House change the number of American soldiers being killed in Iraq? Then how would passing it in the Senate have changed the number of soldiers being killed? And of course there's always the counter-argument used by pundits: Passing the non-binding resolution only encourages the enemy to kill more Americans.

So Senator Kennedy's screaming tirade, accusing anyone who disagrees with him as treasonous, doesn't make much sense.

Democratic Senate majority leader Harry Reid was not screaming. He was cold and deadly as he said to CNN's Wolf Blitzer:

"This war is a serious situation. It involves the worst foreign policy mistake in the history of this country. So we should take everything serious. we find ourselves in a very deep hole, we need to find a way to dig out of it."

Democratic Senators Harry Reid and Carl Levin <font face=Arial size=-2>(Source: CNN and Fox News)</font>
Democratic Senators Harry Reid and Carl Levin (Source: CNN and Fox News)

Blitzer asked him, "Maybe I misheard you, but you're saying this is the WORST foreign policy blunder in American history?" His response: "That's what I said."

(That's funny. Wasn't the purchase of Alaska the biggest foreign policy blunder in American history? Here's how it was described: "Seward's Folly. After the astonishing purchase of Alaska [from Russia, in 1867] for about 2 cents an acre, the public began to insult the purchase and the involvement by William Seward. The press and various newspaper companies started announcing Alaska as a worthless piece of real estate with its cold temperature, frozen waste land, and rugged terrain. Seward and the purchase later were termed "Seward's Folly" because of his part in the supposedly wasted purchase. He also received other ridicules as it was also called "Walrussia" and "Seward's icebox". Later William H. Seward left office and died in 1872. Not soon after, it would be shown that this no-good wasted piece of land was rich and abundant in every area ranging from natural resources and numerous species of wild animals.")

Anyway, Democratic Senator Carl Levin from Michigan was equally cold on Fox News when he was presented with an interesting political conundrum.

Moderator Chris Wallace played an video clip from White House press secretary Tony Snow, saying this: "Members of Congress are taking their own gamble here - they're gambling on failure - some members at least." Wallace then asked Levin, "Senator, aren't some democrats in effect gambling that the surge will fail, and won't you end up looking foolish if it should actually succeed." Levin responded thus:

"The course that the President is on is a failing course. It's been failing for four years. We're trying to change that course to one that has the maximum chance of success. And the maximum chance of success is to limit our mission to get us out of a sectarian civil war, so it's the President's course which is a course towards failure."

And this is perhaps the whole point: That the Democrats are not only gambling on failure, they're politically committed to failure. Every one of these Senators affirmed this in one way or another. They've committed their political futures to American failure in Iraq.

The Republicans, I suppose, aren't much better. Many of them expect failure, but at least they're hoping for success. The Democrats responses indicate not only that they expect failure, but that they're hoping for failure.

Isn't it amazing that it's come down to this - that one party is hoping for our country's failure in a war?

When Sandra Day O'Connor stepped down from the Supreme Court in 2005, I wrote about how acrimonious things had become, and that they were going to get a lot worse. That's what happens to a country during a generational Crisis era, such as the one we're in now. We can see how people are becoming increasingly confrontational and less willing to compromise.

During America's last generational crisis period, in the 1930s, the acrimony directed against President Franklin Roosevelt was enormous. He was accused of one thing after another, including treason. Just google the phrase "fdr scandal" to see what happened. Republicans were extremely critical of Roosevelt's handling of WW II. In America's previous generational crisis period, the Civil War, Democrats were very acrimonious about President Lincoln's pursuit of the war, and as late as 1864, the Democratic platform called for peace negotiations with the South, to end the war as quickly as possible.

So this kind of hatred and vitriol is, unfortunately, very common in times like these.

It ends when some major event or events (like the bombing of Pearl Harbor) shock the nation into coming together for their continued survival. In Generational Dynamics, such a time is called the "regeneracy," because these shock events regenerate national unity. It's impossible to predict what events will trigger an American regeneracy at this time, but possibilities include a major terrorist attack on American soil or a devastating military reversal.

Richard Engel, NBC News Mideast Bureau Chief, on Meet the Press <font face=Arial size=-2>(Source: NBC)</font>
Richard Engel, NBC News Mideast Bureau Chief, on Meet the Press (Source: NBC)

Amidst all the nonsense that was spoken on the Sunday morning talk shows, there was one moment worth repeating.

NBC news Mideast bureau chief Richard Engel has just returned from several years in Iraq. Here's what he has written recently, as quoted on Meet the Press:

"As Iraq has changed, I have changed. The war has cost me my marriage. I have had friends killed and kidnapped, survived bombings and attempts on my life. I have seen Iraqis freed from the numbing, terrifying fetters of totalitarianism, and had their lives destroyed by the religious bigotry, ignorance, greed and opportunism unleashed by this war. It has changed my outlook. Violence and cruelty now seem, to me, to come easily to mankind, a new belief that disturbs me. But I am also more appreciative of how quickly life can turn for the better, or for the worse."

Engel has gone through a very interesting transformation, an understanding of what happens in a generational Crisis War, like our Civil War or World War II. During these periods, torture and cruelty to one another are the rule. It's part of being human, but a part that's only exposed once in a lifetime, during a crisis war. This is why there's such a major difference in world view between people who live through a crisis war (like our G.I. and Silent generations) and those who are born afterwards (like our Boomers and Generation-X).

That's why there's such an enormous political clash between generations during generational Awakening eras, like America in the 1960s. The older generations understand that "violence and cruelty come easily to mankind," as Engel said, while the younger generations are without a clue. Today, the Boomers are the nation's leaders, but they still don't have a clue how the world works. That's why all of them, Republicans and Democrats alike, are so confused about what's going on. As we approach the Clash of Civilizations World War, it's well to remember that, before it's over, all Americans who survive will undergo the same transformation that Richard Engel has already experienced. (19-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Bird flu spreading rapidly in Asia during New Year's celebrations

This is the most dangerous time of the year for possible pandemic mutation.

China's biggest celebration of the year happens on Saturday evening, New Year's Eve, preparing for the Year of the Pig that begins on Sunday. Pigs symbolize abundance and wealth to Chinese people. To welcome the auspicious year, there are fireworks, and family reunion dinners. There is a Year of the Pig every 12 years.

Unfortunately, the Year of the Pig is also known for disasters, as fortune tellers can explain. Although it's lucky to be born in the Year of the Pig, it's unlucky to have to live through it. Pig years can be turbulent because they are dominated by fire and water, conflicting elements that tend to cause havoc, according to fortune tellers. "Fire sitting on water is a symbol of conflict and skirmish. We'll also see more fire disasters and bombings."

Well I don't know if the fortune tellers have been reading this web site, but experts from the World Health Organization (WHO) are warning of other dangers.

Overall, there have been 273 cases of human bird flu across the world, with 166 deaths.

There have been multiple new outbreaks of bird flu among birds in Vietnam, South Korea, Japan and Thailand.

Tens or hundreds of thousands of these crates are being shipped around China. Guess what's in them?  Hint: It's alive. <font face=Arial size=-2>(Source: BBC)</font>
Tens or hundreds of thousands of these crates are being shipped around China. Guess what's in them? Hint: It's alive. (Source: BBC)

Right now, the H5N1 high potency avian influenza (HPAI) virus is easily transmitted from bird to bird, but not easily from human to human. Mutations have been occurring frequently, including a mutation that makes the Egyptian strain resistant to Tamiflu, but no mutation has yet occurred that makes it easy for the virus to move from human to human. This would cause a worldwide human pandemic.

The most likely time of the year for such a mutation is February, for two reasons. First, it's the height of winter in the northern hemisphere, and cold temperatures promote the spread of any virus. And second, the new year's celebrations throughout Asia are causing hundreds of millions of people and probably billions of chickens to travel around and mix with one another. This mixing makes the changes of a deadly permutation more likely.

Right now, there have been only three Asian countries that have remained bird-flu free so far: Philippines, Singapore and Brunei.

There have been new H5N1 outbreaks throughout Asia, Europe and Africa.

There have been several bird flu outbreaks in the Moscow area. The virus was evidently spread by bird purchases from a single large market.

A year ago, bird flu became endemic and firmly established in Turkey, and this year it's it's already spread to 10 villages in southeast Turkey.

In Egypt, a a 5-year-old boy and a 37-year-old woman died of bird flu this week.

In Western Africa, Côte d'Ivoire (Ivory Coast) is stepping up surveillance, following the death of a Nigerian woman who died of the disease last month.

Britons are still in state of shock over a bird flu outbreak among turkeys in a large, completely enclosed building run by a major distributor of turkey meat (Bernard Matthews plant in Holton, Suffolk).

For several weeks, British health authorities have been investigating possible causes, and they've identified a number of "serious bio-security lapses," including meat scraps in open bins that gulls feed on, and holes in the building itself allowing entry by small birds, rodents and rats.

However, what is considered the most likely cause is the importation of meat to Britain from Hungary, where a bird flu outbreak occurred a couple of months ago. However, this had led to feuding between the two countries, as Hungary denies that such contamination could have occurred.

Keep in mind that there may be outbreaks that haven't yet been discovered. Experiences last year show that surveillance is very poor in most countries, and no outbreak is reported until someone reports seeing a large number of dead birds in one place. That means that an outbreak can spread for a while before it's discovered.

We now take a break from this story to provide today's Generational Dynamics Culture Segment.

I don't really know who rock star M.I.A. is, since I haven't yet gotten over the death of Karen Carpenter. However, I wanted to check M.I.A.'s new video, entitled "M.I.A. - Bird Flu":

It's turns out that M.I.A. is a very hot chick, and as pleasant as it is to watch her prancing around with kids and chickens, this video is almost completely incoherent. You can check out the lyrics, and find that they contain such scintillating lines as, "put away shots for later / so I’m stable / live in trees chew on feet / watch lost on cable / bird flu gonna get you / made it in my stable / from the crap you drop / on my crop when they pay you."

Clues may be found on her Wikipedia page and her MySpace web site.

It turns out that the song is a protest song against the Sri Lanka government, which is currently in a civil war with the Tamil Tiger rebels. M.I.A. is 29 year old Mathangi "Maya" Arulpragasam, the daughter of a Tamil Tiger militant.

Maya decided to release this video in order to educate young people about what's happening to her people in Sri Lanka. The "bird flu" refers to "crap" from the Sri Lanka armed forces, or something like that. Unfortunately, trying to educate college students about anything going on in the world today is a hopeless task though for very good generational reasons. Take a look, for example, at this review by a Harvard student, Nayeli E. Rodriguez, who has no idea what's going on in the video except that Sri Lanka might be a third world country.

That ends our Culture Segment. Back to the original story.

Bird flu has not yet reached North America, as far as is known, but Mexico is upgrading its animal health rules in preparation.

As I always do, I once again remind the reader that it's impossible to predict when a particular mutation will permit easy human-to-human transmission, which would result in a worldwide pandemic. This could happen next week, next month, next year, or thereafter.

Once again, as I always say, you and your family should prepare immediately for a possible pandemic. If human to human transmission became public next week on Monday, then by Tuesday all the shelves in grocery stores would be bare. If you stock up on food now, then you'll be sure to have what you need. Even if you think that you can beat the crowds to the grocery store, you should still stock up in advance. If you get your canned food after the panic begins, then you're depriving somebody else of food. But if you stock up in advance, then the shelves will be restocked, and you won't deprive someone else of food.

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. (17-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

It's the Year of the Pig in North Korea

On Kim Jong-il's birthday, he gloats about humiliating the U.S.

It's the time of the year for New Year's celebrations in Asia, and Friday was North Korean President Kim Jong-il's birthday. Poverty and starvation are rampant in North Korea, but nothing is too good for Kim's birthday.

As happened on Wednesday, on Friday morning BBC's Charles Scanlon gave an interesting commentary containing things that don't appear online:

Celebrating throngs at Kim Jong-il's birthday celebration on Friday <font face=Arial size=-2>(Source: BBC)</font>
Celebrating throngs at Kim Jong-il's birthday celebration on Friday (Source: BBC)

"This is not a leader who has to worry about opinion polls. Adulation, bordering on worship is the required response when Kim Jong-il meets his subjects. The footage is being played repeatedly on North Korean television, helping whip up enthusiasm for the man they call The Great General.

This year, the birthday celebrations have an extra kick. Kim Jong-il is being credited with giving his country nuclear weapons, and then wrestling the united states into a humiliating climbdown. ...

Despite appearances, this is a regime fighting for survival. Kim Jong-il's genius is to project an image of strength, and make the very best of a weak hand. After testing a nuclear device, he's now looking to extract tribute from nervous neighbors and the United States.

The North Korean people have been told there'll only be a temporary freeze of the nuclear reactor, in return for generous rewards from the outside world. The regime said nothing about giving up the nuclear weapons it's already built, or about dismantling, once and for all, its nuclear capabilities.

Desperately needed aid from South Korea is now likely to resume, and the US financial squeeze will be scaled down.

That's good news for the citizens of Pyongyang, out today to celebrate their leader's birthday. It could also leave little incentive to give up a residual deterrent to keep the regime feeling secure in a hostile world.

As I've written several times on this web site, Kim Jong-il has been masterful in manipulating the world, and for repeatedly making promises with no intention of keeping them.

Prominent billboard in Pyongyang, North Korea, 2003.  The right-most frame shows a North Korean spearing an American with a bayonet.
Prominent billboard in Pyongyang, North Korea, 2003. The right-most frame shows a North Korean spearing an American with a bayonet.

Kim has essentially promised his people that he will not honor this week's nuclear accord, and has essentially said that it's a ruse to humiliate the United States and to "extract tribute" in the form of aid.

Part of the nuclear accord requires North Korea to "permanently" disable all nuclear facilities. It will be interesting to see how Kim gets out of that commitment, and how he will arrange for the world to blame the United States. (17-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Stock market margin debt reaches March 2000 all-time high

The manic stupidity of investors today continues to duplicate 1929.

Margin Debt - $ billions - 1960-2006 <font size=-2>(Source: Sudden Debt blog)</font>
Margin Debt - $ billions - 1960-2006 (Source: Sudden Debt blog)

I'm grateful to Friday's entry in the Sudden Debt blog for pointing out that margin debt has reached its previous all-time high, just prior to the Nasdaq crash in 2000.

Margin is the amount of money that an investor must pay the broker in order to purchase stock. In the 1920s, typical margin rates were 10-25%, which meant that the broker loaned the investor 75-90% of the price of the stock.

Seeing this blog entry motivated me to return to John Kenneth Galbraith's 1954 book, The Great Crash - 1929, to see what he had to say about margin debt in the 1920s.

Galbraith gives the following as the purpose of margins:

"The purpose is to accommodate the speculator and facilitate speculation. But the purposes cannot be admitted. If Wall Street confessed this purpose, many thousands of moral men and women would have no choice but to condemn it for nurturing an evil thing and call for reform. Margin trading must be defended not on the grounds that it efficiently and ingeniously assists the speculator, but that it encourages the extra trading which changes a thin and anemic market into a thick and healthy one. At best this is a dull by-product and a dubious one. Wall Street, in these matters, is like a lovely and accomplished woman who must wear black cotton stockings, heavy woolen underwear, and parade her knowledge as a cook because, unhappily, her supreme accomplishment is as a harlot."

Well, if the 1929 stock market was a harlot, then I can't even imagine what words we'd have to use to describe the incredible level of financial depravity and debauchery exhibited today by financial advisors, hedge fund managers, and real estate public relations people today. About the only positive thing that can be said is that a lot of these people will be going to jail.

Margin Debt - $ billions - 1920-1929 <font size=-2>(Source: John Kenneth Galbraith)</font>
Margin Debt - $ billions - 1920-1929 (Source: John Kenneth Galbraith)

Galbraith doesn't give a complete set of figures for the amount of margin debt leading up the 1929 crash, but he does give some figures buried in the text. Combining those figures with a couple of inferences, we get the adjoining graph for the level of margin debt throughout the 1920s.

The New York Stock Exchange web site has a page giving history margin debt amounts, but it only goes back to 1959. However, it is worth noting that in 1959, total margin debt was just $3.4 billion, same as in 1927.

That shouldn't be surprising when you recall that the stock market itself didn't return to its 1929 peak until 1954.

In reading Galbraith's book, I re-discovered something I had completely forgotten -- that there WAS a trigger after all to the 1929 Wall Street Crash.

Recall that that I wrote a few days ago that the Hamburg crisis of 1857 (panic of 1857) was triggered by a small event -- an employee of the New York branch of the Ohio Life Insurance and Trust Company was found to have embezzled money. I added that no one, to my knowledge had identified any "small event" that triggered the Wall Street crash of 1929.

In his book, Galbraith actually does identify a "small event" that triggered the crash:

"On September 3, by common consent, the great bull market of the nineteen-twenties came to an end. Economics, as always, vouchsafes us few dramatic turning points. Its events are invariably fuzzy or even indeterminate. On some days that followed -- a few only -- some averages were actually higher. However, never again did the market manifest its old confidence. The later peaks were not peaks but brief interruptions of a downward trend.

On September 4, the tone of the market was still good, and then on September 5 came a break. The Times industrials dropped 10 points, and many individual stocks much more. The blue chips held up fairly well, although Steel went from 255 to 246, while Westinghouse lost 7 points and Tel and Tel 6. Volume mounted sharply as people sought to unload, and 5,565,280 shares were traded on the New York Stock Exchange.

The immediate cause of the break was clear -- and interesting. Speaking before his Annual National Business Conference on September 5, Roger Babson observed, "Sooner or later a crash is coming, and it may be terrific." He suggested that what had happened in Florida would now happen in Wall Street, and with customary precision stated that the (Dow-Jones) market averages would probably drop 60-80 points. In a burst of cheer he concluded that "factories will shut down ... men will be thrown out of work ... the vicious circle will get in full swing and the result will be a serious business depression."

This was not exactly reassuring. Yet it was a problem why the market suddenly should pay attention to Babson. As many hastened to say, he had made many predictions before, and they had not affected prices much one way or another. Moreover, Babson was not a man who inspired confidence as a prophet in the manner of Irving Fisher or the Harvard Economic Society. As an educator, philosopher, theologian, statistician, forecaster, economist, and friend of the law of gravity, he had sometimes been thought to spread himself too thin. The methods by which he reached his conclusions were a problem. They involved a hocus-pocus of lines and areas on a chart. Intuition, and possibly even mysticism, played a part. Those who employed rational, objective, and scentific methods were naturally uneasy about Babson, although their methods failed to foretell the crash. In these matters, as often in our culture, it is far, far better to be wrong in a respectable way than to be right for the wrong reasons." [pages 84-85]

As Galbraith indicates, Babson was not exactly well known as an economist or financier. He's an interesting person, having founded Babson College here in Massachusetts in 1919, and also founded the Gravity Research Foundation in 1948.

He gave many speeches at many different times, and presumably had predicted a financial crisis in those speeches as well, but it was this particular speech at this particular time that triggered the 1929 Wall Street crash.

This illustrates the point of why I keep mentioning Chaos Theory on this web site. Most people have heard of the "Butterfly Effect" in weather forecasting: if a butterfly in China flaps its wings, then it can start a chain reaction that leads to a hurricane in America a week or two later. This idea, that a tiny event can lead to major consequences, was popularized in the 2004 movie, The Butterfly Effect, starring Ashton Kutcher.

In this case, the "tiny event" was Babson's speech. Last year, a "tiny event" -- the decision by a Danish magazine to publish cartoons depicting Mohammed exploded into the "Danish cartoon controversy," with worldwide confrontations between Muslims and Westerners. Last week I went into detail about how another "tiny event," Ariel Sharon's visit to the Temple Mount in Jerusalem in 2000 triggered the second Palestinian Intifada.

Now, Galbraith writes, "The immediate cause of the break was clear ...." He identifies Babson's speech as the CAUSE of the 1929 crash, or at least the "immediate cause."

I use the word "trigger," rather than cause. Other possible words are "catalyst" or "incitement" or "impetus."

The conditions for the 1929 crash were already there -- the generational changes that led to the abuse of public and private debt, resulting in a vastly overpriced stock market. All it took was the right trigger to cause the bubble to explode.

As we careen towards a new international financial crisis, there's no way to predict, of course, what "little event" will trigger the worldwide panic that will bring it about. It might be something that someone in Chicago says, or it might be some financial data out of Ecuador, or it might be something stupid that someone in China does. There's no way to predict either the event or the timing. It might happen next week, next month, or next year. But the global financial system becomes more imbalanced every day, with the imbalances growing exponentially quickly, so it can't be too far off.

Here's something that made me chuckle. On Friday morning a little after 10 am, the Census Bureau announced that housing starts had fallen 14.3% in January, far lower than economists had predicted, and were at the lowest level since 1997.

CNBC reported this just after 10 am, and CNBC economics guru Steve Liesman looked very glum as he relayed the bad news. Economists had been fearing a fall in housing construction, because of its domino effect throughout the economy -- on lumber, pipes, copper, furniture, craftsmen, community welcome wagons, and so forth, with a deleterious on employment and production.

But it took less than five minutes for another CNBC analyst to say (paraphrasing): "Hey! This is good news! This will reduce the inventory of unsold homes, and housing prices will start rising again!!" It was another one of those bizarre moments that have become so common. If housing starts had risen 14.3%, they would have been talking about how great it was that the economy was expanding. But it fell 14.3% and it's still wonderful news. There's never any bad news on Wall Street.

An even more ridiculous example is an article by CNBC comedian/analyst James J. Cramer.

As we've written several times, many homeowners are defaulting on subprime mortgage loans, and they're losing their homes. The rate of default has been increasing dramatically.

Well, to Jim Cramer, this is not just good news, it's VERY GOOD news:

"I wish the bears understood how important subprime lending is to my thesis about the market going higher. But then again, if they did, they would be forced to cover everything.

For as long as I have been at this game, it has taken a crisis for the Federal Reserve to move. The Fed is always reluctant to move because it needs the crisis as a cover so it doesn't look like it's soft on inflation. ...

When you have the housing industry building a fraction of the homes it was building and credit hard to come by, you are giving Benanke the crisis cover he needs.

Some of my friends who read RealMoney are freaking out about the negative columns that are being written about how dangerous this subprime crisis is. I'm taking those columns very seriously, which is why I am growing more bullish by the day. The fact that the Fed chairman bought into it today in front of the House of Representatives shows me that the Congressional drumbeat -- remember, prime is Republican, subprime is Democrat -- could be building and building fast. ...

If anything, they're saying there might be a fire. I say it's raging, which is why I believe the crisis is about to give us that May cut that I am counting on to take the Dow up 17% this year."

In other words, if the subprime mortgage collapse causes a real financial crisis, then the Fed will have to cut interest rates, and the market will start going up again. I don't even know what to say because I just can't stop laughing at this. I'll leave it to the reader to figure out what's wrong with this reasoning.

So, once again, we see the Principle of Maximum Ruin in action.

In the quote above from Galbraith's book, he alluded to a housing bubble that had occurred in Florida starting in 1925. Here's what he writes about it:

"On that indispensable fact men and women had proceeded to build a world of speculative make-believe. This is a world inhabited not by people who have to be persuaded to believe but by people who want an excuse to believe. In the case of Florida, they wanted to believe that the whole peninsula would soon be populated by the holiday-makers and sun-worshippers of a new and remarkably indolent era. So great would be the crush that beaches, bogs, swamps, and common scrubland would all have value. The Florida climate obviously did not insure that this would happen. But it did enable people who wanted to believe it would happen so to believe." [pages 3-4]

According to Galbraith, areas of land were subdivided into small plots. A plot of land that might have sold for a few hundred dollars in the early 1920s might sell for thousands of dollars in 1925. Some of the better seashore sites sold for $20-75,000.

Prices began leveling off in 1926, but then two hurricanes hit Florida in fall, 1926, killing hundreds of people and destroying thousands of houses. By 1928, the bubble had completely collapsed, and prices fell by as much as 75%. Unfortunately, investors didn't learn the lesson of the bubble.

"The Florida boom was the first indication of the mood of the twenties and the conviction that God intended the American middle class to be rich. But that this mood survived the Florida collapse is still more remarkable. It was widely understood that things had gone to pieces in Florida. While the number of speculators was almost certainly small compared with the subsequent participation in the stock market, nearly every community contained a man who was known to have taken "quite a beating" in Florida. For a century after the collapse of the South Sea bubble, Englishmen regarded the most reputable joint stock companies with some suspicion. Even as the Florida boom collapsed, the faith of Americans in quick, effortless enrichment in the stock market was becoming every day more evident." [pages 6-7]

Galbraith's statements apply to an even greater extent today. You'd think that investors would have learned something from the 1990s stock market bubble, and 2000 Nasdaq crash. But incredibly, they learned absolutely nothing. Lots of people took "quite a beating" in 2000, but it makes no difference. The "faith of Americans in quick, effortless enrichment in the stock market [is] becoming every day more evident," just as it did in 1929 prior to the crash. (16-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

South Korean politicians are 'euphoric' over North Korea nuclear deal

The young "386 generation" that run the government may well be in over their heads.

I transcribed Wednesday morning's very interesting BBC commentary by Charles Scanlon in Seoul, where he said things that don't appear in the BBC's online coverage:

"We are seeing something approaching euphoria, from at least among some members of the South Korean government, in reaction to this agreement that was signed in Beijing.

The Unification Minister who's reponsible for relations with the North said this could be a turning point in the establishment of a peace regime on the Korean peninusula.

And certainly the South Koreans do feel to some extent vindicated by what has been in effect a major change in U.S. policy toward North Korea.

They've been urging a more conciliatory approach from the very beginning, and they're certainly very relieved that the Americans now do seem serious about getting a negotiated settlement with the North Koreans, and they've softened some of their pressure tactics.

The president, Roh Moo-hyun, said he's expecting a very easy implementation of this accord.

I think there we are seeing really wishful thinking on the President's part, because after all any agreement with the North Koreans is not going to come easy.

They're going to haggle down to the last moment on all the terms, and of course, it is a fairly vaguely worded agreement. the North Koreans have said nothing at this stage about giving up the nuclear weapons that they've already built.

They're just talking about shutting down the reactor at Yongbyon, and there's been nothing about the alleged second secret nuclear program that the Americans say they've been running. But either way, the South Koreans do see an opportunity in this to push ahead with their policy of reconciliation.

They're going to be meeting with the North Koreans in the next few days, and I think we're likely to see some generous food aid and other assistance from the South Koreans, even before the aid gets shipped in related specifically to the deal."

It certainly would not be surprising if South Koreans are in a much worse state of anxiety than Americans are. After all, we may be stuck in Iraq, and we may fear terrorist attacks, but those all seem very distant.

But for South Koreans, the danger is right on their doorstep. With a population of 10.3 million, Seoul is the fifth largest megacity in the world, and is only about 50 miles from the North Korean border.

Thus, a decision by North Korea's unpredictable president Kim Jong-il to invade South Korea could bring conventional missiles to Seoul in a matter of minutes, and ground troops within an hour or two.

And now, with nuclear weapons in the picture, it's quite reasonable that the people in Seoul are going to be much more anxious than the people in Washington.

From the point of view of Generational Dynamics, Seoul is suffering from the same level of incompetence as Washington, because the same post-World War II generations are in charge. But in Seoul it's actually worse because the leadership skipped a generation, creating an enormous amount of turmoil.

So it's not the least surprising that the BBC reports find South Korean leaders "euphoric" over a plan with little chance of succeeding, or that President Roh Moo-hyun's expectation of a "very easy implementation" is just "wishful thinking."

Seoul is very much like Washington these days, only worse -- there's bickering, only more of it; there's incompetence, only more of it; and there's the same manic-depressive, depending mainly on the current status of relations with North Korea.

Brief history of S. Korea since World War II

Korea is one of the oldest nations on earth, with some 4000 years of history. Here we can only give a brief summary of its extremely tumultuous history in the 1900s:

Cognitive Dissonance in Roh's administration

There are clear, sharp differences between the 386ers policies, as implemented by Roh Moo-hyun, and the previous generation's policies, as implemented by President Park Chung-hee before his 1979 assassination. Thus, Park's generation grew up during the extreme poverty of the Korean War. The 386ers have known nothing but peace and prosperity.

We thus have a situation where the government is being run by fairly young ministers with little experience in governing, with an ideological policy of reconciling with North Korea, a country that may be about to invade them.

That explains the "cognitive dissonance" and why they are "euphoric" over this week's accord, and why President Roh is engaging in "wishful thinking." They're suffering from the same manic-depression disease as Washington, and they'll be moving from a manic phase to a new depressive phase before long.

Smiling North Korean news anchor announces successful nuclear weapons test in a gleeful, happy voice in October, 2006 <font size=-2>(Source: CNN)</font>
Smiling North Korean news anchor announces successful nuclear weapons test in a gleeful, happy voice in October, 2006 (Source: CNN)

We know a lot less about how the North Koreans are feeling, but we can be pretty sure that they have their manic periods as well. You'll recall that when the North Koreans announced their nuclear test last October, they were positively ebullient, as illustrated by the grins and smiles on the lady reading the news in the adjoining graphic. Needless to say, that test threw both South Korea and Japan into a panic.

The Agreement

It's well to remember that this is not the first time that North Korea has agreed to end its nuclear program. They played a little joke on the world in September, 2005, when they announced that they would end their nuclear program.

President Bush said, "Five nations have spoken and said it is not in the world's interests that North Korea have a nuclear weapon. And now there's a way forward. And part of the way forward is for the North Koreans to understand that we're serious about this and that we expect there to be a verifiable process. In other words they have said, in principle, that they will abandon their weapons programs."

It took only one day for the North Korean Foreign Ministry to issue a statement saying, "The U.S. should not even dream of the issue of North Korea's dismantlement of its nuclear deterrent before providing light-water reactors. This is our just and consistent stand as solid as a deeply rooted rock."

So now, North Korea has once again agreed to end its nuclear development program. They didn't say what they would do with the 5 or 10 nuclear weapons they already have, but they have agreed to stop their nuclear program in return for massive amounts of food and oil aid from the West.

I thought this was a nice picture of the East Room of the White House during the Feb 14 press conference.
I thought this was a nice picture of the East Room of the White House during the Feb 14 press conference.

Here's President Bush's statement at a Wednesday press conference:

"Before I'm going to take some questions, I'd like to comment about one other diplomatic development, and that took place in the Far East. At the six-party talks in Beijing, North Korea agreed to specific actions that will bring us closer to a Korea Peninsula that is free of nuclear weapons. Specifically, North Korea agreed that within 60 days it will shut down and seal all operations at the primary nuclear facilities it has used to produce weapons-grade plutonium. It has agreed to allow international inspectors to verify and monitor this progress. It is committed to disclosing all of its nuclear programs as an initial step toward abandoning these programs.

In exchange, five other parties at the table -- that would be China, Russia, Japan, South Korea and the United States -- have got commitments. We will meet those commitments as this agreement is honored. Those commitments include economic, humanitarian and energy assistance to the people of North Korea.

This is a unique deal. First of all, unlike any other agreement, it brings together all of North Korea's neighbors in the region, as well as the United States. The agreement is backed by a United Nations Security Council resolution. That resolution came about -- the sanctions came about as a result of the resolution because of a unanimous vote in the Security Council.

This is good progress. It is a good first step. There's a lot of work to be done to make sure that the commitments made in this agreement become reality, but I believe it's an important step in the right direction."

A lot of other people are skeptical, including former U.S. ambassador to the United Nations, John R. Bolton. "It is rewarding bad behavior of the North Koreans by promising fuel oil," he said. "It's a bad signal to North Korea and it's a bad signal to Iran. ... The message to would-be arms proliferators around the world is that if you hold out long enough and wear down the State Department negotiators, eventually you get rewarded."

From the point of view of Generational Dynamics, the trend prediction is that North and South Korea are headed for a major genocidal war with each other to decide who will rule the country after reunification. Since we have a defense agreement with South Korea, we'd be drawn into such a war, as would China and Japan.

This trend prediction indicates that the nuclear accord reached this week will not survive. It's lasted longer than one day, which was the life of the previous agreement, but it's very unlikely to last long.

The North Koreans have repeatedly used subterfuge and nuclear blackmail to get what they want from the West. This time, they've been promised a very great deal of foreign aid, but they have to meet specific commitments for that aid to continue. Let's wait and see how they'll manage that situation.

Meanwhile, we can't expect much from the South Koreans with their current government. The 386er generation, which runs the government, is too young to handle the situation's nuances, and the danger of miscalculation is very high. It's hard to know how they'll react if, for example, the North Koreans test another nuclear weapon. (16-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Sorry, Ladies, you'll have to do without flowers on Valentine's day.

They're bad for global warming, for the environment and for you.

First off, if you're going to buy flowers, you should buy African flowers, according to UK's International Development Secretary Hilary Benn, who notes that Kenya is the world's largest flower exporter:

"People want to buy ethically and do their bit for climate change, but often don't realise that they can support developing countries and reduce carbon emissions.

Recent research shows that flowers flown from Africa can use less energy overall than those produced in Europe because they're not grown in heated greenhouses.

So, this Valentine's day, you can be a romantic, reduce your environmental impact and help make poverty history.

This is about social justice and making it easier, not harder, for African people to make a decent living."

Maybe so, but ANY Valentine's bouquet is "bad for the planet," according to Andrew Sims, the policy director of the New Economics Foundation, an environmental group.

"Air freighting flowers half way round the world contributes to global warming," he said. "You can argue the planes would be flying anyway but the amount of greenhouse gases pumped out depends on the weight of the cargo."

So unless you grow flowers yourself, forget flowers, ladies.

But what about Americans? The second largest flower exporter is the Netherlands, and third is Colombia. Colombia isn't so far away, and they produce 62% of all flowers sold in the United States. Can't we give those flowers for Valentine's Day?

According to Time Magazine's online site, the answer is no.

Colombian flowers, it turns out, are loaded with toxic chemicals, so that they'll still be "fresh" when the guy presents them to his loved one. The chemicals are various pesticides and fungicides, to keep away the different kinds of pests and fungi.

Now, we know how important it is for each of us to worry about global warming. The way we know that is that Europeans keep telling us how evil America is for not ratifying the Kyoto Treaty, even though Europeans have done almost nothing to reduce emissions, and just want to bash Americans.

And, of course, China will soon be the world's greatest contributor to global warming, but that's beside the point too.

So ladies, do your part, and tell you husbands and boyfrieds to absolutely not give you flowers.

Hey it might work out OK -- maybe you'll get a diamond instead! (14-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

ABX Housing mortgage default loan index takes another big dive

Economists are debating how much "spillover" will occur, but "Contrary Investor" does it right.

The ABX index, that we discussed a few days ago, measures investor confidence that subprime mortgage borrowers will default.

On Monday of last week, the value of this index, known as "ABX-HE-BBB- 06-2," stood at 89.63. On Thursday, after the surprise negative earnings restatements at mortgage lenders HSBC and New Century, it fell to 86.00. On Friday it fell sharply to 82.68, and on Monday it fell again to 80.35.

Index price of ABX-HE-BBB- 06-2 from August to Monday, Feb. 12 <font face=Arial size=-2>(Source:</font>
Index price of ABX-HE-BBB- 06-2 from August to Monday, Feb. 12 (Source:

Subprime mortgages are those granted to home buyers with poor credit under the assumption that almost anything is safe when home prices are skyrocketing. But now that the housing bubble has been deflating for over a year, foreclosures are skyrocketing. Home sales haven't crashed as much as they might have, but prices are a lot lower, so homes are being sold at desperation prices.

(A web site reader wrote to me to say that I haven't justified the "desperation prices" claim. I guess it depends on how you look at it. If you have to sell your house for $50,000 less than you bought it for, because you can no longer afford your adjustable rate mortgage, you would consider yourself desperate, wouldn't you? Well, there are a lot of people in that situation right now.) (Added on 13-Feb)

There is little good news to be found anywhere, and a seemingly unlimited supply of bad news. Take a look each day at the housing bubble weblog. Each day, this site summarizes news stories from around the country on what's going on.

Here's a sample: Someone buys a home in 2005 for $800,000. He gets an "interest-only" adjustable-rate mortgage (ARM), so he only has to pay $1000 a month in mortgage payments. However, that payment schedule is for two years only, and it's expiring now. He now has to make both interest and principal payments on the mortgage loan, and the "adjustable rate" kicks in, since interest rates are higher now than in 2005.

The result: Their monthly mortgage payment goes from $1000 to $4000.

Furthermore, their home is no longer worth $800,000. It's now worth only $600,000.

These people are SCREWED, but at least they didn't commit fraud.

There are plenty of other people who lied on their mortgage applications, planning to keep the home for a few months, and then "flip" it by reselling at a higher price. Trouble is, the bubble has burst and it's not worth as much any more. Many people who closed these deals in 2006 didn't even make their first mortgage payment, and they're going to be charged with fraud.

Dear reader, have you ever heard the phrase "predatory lending"?

That's a new word in Washington these days. Congress is investigating whether mortgage loan companies are guilty of making it too easy to get mortgage loans. Get it? "Predatory lending." Ha, ha!

(A web site reader has written to ask me what the joke is in the preceding paragraph. The joke is that "predatory" usually means either preying on someone by plunder or pillage or by eating them, or else forcing them to do something against their will. So how can making it too easy to get a mortgage loan be predatory? Ha, ha.) (Added on 13-Feb)

The crap is really going to hit the fan before long. We're going to see home owners, loan officers, bank managers, investors, and hedge fund managers charged with unprofessional conduct, civil fraud, and criminal fraud.

Even mainstream economists are actually beginning to get alarmed, and they're debating about the spillover concept.

The question is: Will a collapse of the subprime mortgage market spill over into other sectors of the economy? Two economists on the Morgan Stanley web site argue both sides of the issue.

Richard Berner takes the optimistic argument, that "worries about a wider credit crunch are dramatically overblown." Strangely, Berner confines his spillover argument to the effect on the broader credit market, apparently believing that: as goes the credit market, so goes the economy:

"Soaring defaults signal that the long-awaited meltdown in subprime mortgage lending is now underway, and it likely has further to go. Fears are rising that this so-far idiosyncratic credit bust will morph into a broader, systemic credit crunch as foreclosures rise, lenders grow cautious, and Congressional efforts to rein in predatory lending further choke off supply. A credit crunch occurs when lenders deny even creditworthy borrowers access to borrowing. What are the risks of such a scenario? ...

But in my view and in the opinion of my colleagues Ken Posner and Suzanne Schiavelli, who cover the mortgage lenders, early payment defaults are symptomatic of and confined to aggressive lenders that stretched to maintain origination volume to cover a high fixed-cost business model. “Stretching” in this case means originating or buying so-called stated-income loans — those for which there is no documentation concerning the borrower’s ability to repay, only his or her statement. Fraudulent representation appears to account for much of the early payment defaults. In contrast, disciplined industry leaders have experienced almost no early payment defaults, in line with the modest deterioration in overall mortgage credit quality described above."

The pessimistic side of the argument is taken by the Stephen Roach. Roach's spillover argument focuses mainly on the potential spillover to consumer spending, evidently believing that: as goes consumer spending, so goes the economy:

"One of today’s great paradoxes is the perceived lack of spillovers. Macro theory stresses interrelationships within economies, between markets, and across borders. Yet most financial market participants now believe in the theory of containment -- that disruptions in one sector, one market, or even one economy can, in effect, be walled off from the rest of the system. Whether it’s the bursting of the US housing bubble, carnage in sub-prime mortgage lending, or a slowing of Chinese investment, these events are quickly labeled as “idiosyncratic” -- unique one-off disturbances that are perceived to pose little or no threat to the larger whole. The longer a seemingly resilient world withstands such blows, the deeper the conviction that spillover risk has all but been banished from the scene. Therein lie the perils of a dangerous complacency. ...

Asset effects are also likely to keep putting pressure on American consumers. A personal saving rate that has now been in negative territory for two years in a row leaves little doubt of the asset-dependent support to US consumption. ...

Looking through the noise of energy-related gyrations to headline prices and inflation-adjusted household purchasing power, I remain highly skeptical of the consumer resilience call in a post-housing-bubble climate. And if the consumer finally fades, as I suspect, capital spending will be quick to go as well. I draw no comfort from ever-abundant coffers of corporate cash flow. If the demand outlook turns shaky due to spillover effects from housing to consumption, businesses will rethink expectations of future pressures on capacity utilization -- and cut back plans to expand capacity accordingly."

Unfortunately, both arguments are fundamentally wrong because they exhibit all that's wrong with current mainstream macroeconomics theory. They look at a few numbers from the past year or two and they draw conclusions from those.

I'll repeat an analogy I've used before. These two analyses are like the following weather forecast: "The outdoor temperature last week was in the 40s, this week it's in the 30s, therefore I predict that next week it will be in the 20s." This is obviously wrong, since if you look at long term trends then you know that the temperature's going to go up because summer's coming.

In the comprehensive analysis of macroeconomic theory that I wrote last year, "System Dynamics and the Failure of Macroeconomics Theory," I showed why the "static" view of macroeconomics that Berner and Roach are using cannot possibly work, and in fact hasn't worked -- it's called everything wrong for at least the last ten years, starting with the late 1990s stock market bubble. Macroeconomic theory has simply been wrong, time after time after time.

The world economy is driven by powerful generational patterns that pulse through the centuries. This really isn't so unreasonable even to someone who hasn't studied the subject; the length of a maximum human lifetime is around 80 years, so why should things like global finances resonate with that time frame? Any engineer will tell you that that makes perfect sense.

If you want to understand what's happening today, you have to look back farther than a couple of years. 1965 and 1975 are just as important as 2005 in understanding what's happening today. Trends that occurred over long periods can be even more relevant.

An astute web site reader has recently pointed out to me that the February, 2007, issue of the Contrary Investor newsletter does exactly that, at least back to 1945.

This newsletter says that "what we are seeing in these charts is an intergenerational change in attitudes toward leverage," and shows that the Boomer generation are going to be in serious financial trouble as they retire. (Gee, do you think they've seen my web site?)

Owner's equity as % of market value of real estate, 1945-present <font face=Arial size=-2>(Source:</font>
Owner's equity as % of market value of real estate, 1945-present (Source:

Take a look at the adjoining graph, which shows what percentage of their homes that people really owned (owner's equity versus real market value). You can see from this graph that in 1945, the average American homeowner owned 85% of his home, with the other 15% mortgaged out; today he owns only about 53% of his home.

This is the point that I've made frequently on this web site -- that the generations of people who lived through the 1929 crash and the horrors of the Great Depression were very cautious, risk-averse investors. As those people were replaced by Boomers and younger generations with no personal memory of the Depression, credit standards have become increasingly sloppy, so much so that the global economy has turned into a giant pyramid scheme.

The point of looking at economic figures back to 1945 is that things like public debt, balance of payments and other global imbalances have been growing exponentially since then, with no sign of leveling off (despite the fact that mainstream macroeconomic theory predicted that they should have leveled off and fell long ago). This is actually proof that we're headed for a crash, because it's mathematically impossible for these imbalances to continue as they have.

Generational Dynamics has been predicting since 2002 that we're entering a new 1930s style Great Depression, with a stock market crash most likely by the 2006-2007 time frame. A crash could come next week, next month or next year, but we can be sure that the "spillover" is going to be a lot worse than either Berner or Roach expect. (13-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

This week's idiot of the week: Robert Reich

"Cognitive dissonance" is turning people from the Boomer generation into fanatics.

First, let me make it clear that this stuff about fanatics is a generational thing, not a political thing. The Republican Boomer "neocons" were wrong that the Iraq war would bring democracy to the Mideast, and they blame that on Bush's mistakes rather than a fundamental error in reasoning. Also, as Democratic bloggers and columnists often point out, many Boomer neocons are now advocating military strikes on Iran to bring democracy to the Mideast, which is a sign of neocon fanaticism. So this is not about politics.

The "common wisdom" in Washington these days, especially after the November election, is that the Boomer neocons were fanatics whom history proved wrong. The subject of this article is that the leftist Boomers have also turned into fanatics, and to explain why Boomers are turning into fanatics irrespective of political beliefs.

I've pointed out several times on this web site how journalists and politicians are looking more and more like complete idiots.

ABC's George Stephanopoulos looked like an idiot in November because Jordan's King Abdullah had to tell him five times of the importance of the Israeli/Palestine situation, but he was still clueless. NBC's Chris Matthews exhibited vitriolic partisanship and sheer stupidity after President Bush's speech, making it clear that he knows nothing about such things as the Iran/Iraq war or the Truman Doctrine. CNN's Michael Ware, talking about the Iraq war, said "If this isn't a civil war, then I'd hate to see a real civil war," apparently completely unaware that there is a real civil war going on Darfur, and that the Iraq war is nothing like that.

Incidentally, Chris Matthews has done it again. In a telephone interview on Wednesday on MSNBC and on "Imus in the Morning" radio show, Chris Matthews said, "We love good mayors because we love our cities and Giuliani is the city guy, and I’m so sick of southern guys with ranches running this country. I want a guy to run for president who doesn’t have a f--king — I’m sorry, a ranch." Matthews used explicit over-the-top language to refer to both of the President Bushes, and he said it on nationwide radio and television news programs (although his swear word was apparently bleeped on MSNBC).

On Sunday's news shows this week, the unchallenged assumption was that Iraq is in a civil war and headed for a bloodbath, with a few Republicans expressing the hope that the "surge" will prevent a bloodbath.

As I've explained many times on this web site, Iraq cannot possibly be headed for a civil war bloodbath, because Iraq is in a generational Awakening era. I won't go over the reasoning again today, except to note that everybody is making policy recommendations based on assumptions that are completely wrong, with the result that the policies are almost certain to be wrong. It must be very depressing to these Boomers that their predictions of a bloodbath keep turning out to be wrong, but that's life.

But let's now turn to the idiot of the week.

Robert Reich on <i>This Week With George Stephanopoulos</i> <font size=-2>(Source: ABC)</font>
Robert Reich on This Week With George Stephanopoulos (Source: ABC)

On Sunday morning on the ABC news talk show, the guest pundit was Robert Reich, President Clinton's Secretary of Labor and now a professor at the University of California at Berkeley. Reich predicted that the Iraq war was headed for a bloodbath civil war, and added, "I hope I'm wrong, but the surge is not going to work, and [the situation in Iraq] will be worse."

In fact, Reich has been predicting a bloodbath for a while now. In a November entry in his blog, he wrote: "I think McCain knows Iraq is out of our hands – it’s disintegrating into civil war, and by 2008 will be a bloodbath."

Now, speaking as someone who makes predictions, this is a very foolish prediction. Even if you ignore the fact that Generational Dynamics says that a bloodbath civil war is impossible at this time in history, Reich is making a prediction based on unpredictable chaotic events, and so there's no way that this prediction could be anything more than a wishful guess.

And now look at a recent entry in Robert Reich's blog, where he wrote the following:

"Question: Why is Bush willing to risk his party’s future, as well as his own legacy, by putting more troops into Iraq when it’s clear to almost everyone – including top military brass, foreign policy experts, and most analysts and journalists on the ground there – that Iraq is descending so quickly into civil war that more troops won’t make a bit of difference except causing more American deaths and instigating more violence?

(Choose one):

A. It’s a [political] delaying tactic [to allow him to delay exiting the war until the end of his term.] ...

B. It’s a predicate for extending the war into Iran. ... We’ve been this route before. Bush preemptively launches a missile into Iran to wipe out its nuclear facilities. The American public forgets the quagmire in Iraq, Sunni Arab nations and Israel rush to defend Bush’s preemptive move, and Bush calls for a regional solution. By this point he claims vindication and turns the even bigger problem over to the next president.

C. Bush is clueless. He doesn’t know how bad the situation is in Iraq because he has surrounded himself with people who tell him what he wants to hear, the only TV he watches is Fox News, and the only radio is the Rush Limbaugh Show."

Now really, dear reader, for those of you who criticize me for sometimes calling politicians, pundits and journalists idiots, can you really blame me for calling Reich an idiot? This has got to be one of the stupidest things I've ever seen, and it's amazing to me that he hasn't disowned it as a relic of temporary insanity.

So he's making a lot of hysterical claims based on two false, unsupported assumptions: that Iraq is headed for a bloodbath civil war, and that the Administration is planning to launch a war against Iran.

In the process he calls President Bush "clueless," when it's perfectly clear that Bush is smarter than Reich. In fact, as we said, Reich is a moron.

However, here's the interesting part:

I went back through Robert Reich's blog, which he began in April, 2006, and through a bunch of Reich's columns dating back to 2001. I wanted to see when it was that Reich started predicting that Iraq was a civil war bloodbath.

Well, apparently he never made that claim prior to his November blog entry, quoted above. Maybe he thought it, but he never said it publicly, as far as I've been able to find.

In fact, skimming through all his articles back over six years, he never made any predictions whatsoever prior to the November election. (Actually, to be more precise, the earliest prediction I could find was his incorrect 4-Aug-2006 prediction that "Senator Joe Lieberman will soon be former Senator Joe Lieberman.")

Prior to that, I can't find any predictions whatsoever. He writes about the economy, the labor market, the Iraq war, and is always critical of the Bush administration, but never predicts anything!

Why is that? What changed in November?

I honestly don't believe that this change is a figment of my imagination. There are too many things -- many of which I've already commented on on this web site -- that indicate that something has happened.

For example, I've seen Chris Matthews on MSNBC many times over the years, and I've never seen him come unhinged the way he has recently. I've noted that Boomer politicians appear to more angry and desperate than before, and that they seem to almost manic-depressive, recalling their giddy, giggling manic stage, that I described on December 7.

As I also mentioned, I've seen this same kind of behavior in friends, as well, both personally and online. There's a kind of desperate fanaticism, as they panic and almost become crazy. It happened recently to the entire city of Boston, as people exploded over the cartoon hoax, which I compared to the 1938 "War of the Worlds" radio show panic.

I've come to relate this to a situation known as "cognitive dissonance."

The thing that characterizes the Boomer generation, as opposed to the older Silent generation and the younger Generation X and Millennial generation, is that Boomers are absolutely certain that they're right. Boomers developed this opinion of themselves in the 1960s and 1970s, when their concerted action forced two Presidents to leave office in disgrace -- Presidents Johnson and Nixon.

Today, Boomers are totally convinced that they're right (no matter how many times they change their minds). They're so certain they're right that their minds don't even have room to question their assumptions. Their minds can't handle "disconfirmation," proof that their assumptions are wrong. That's cognitive dissonance.

The craziness of the leftist Boomers is totally apparent. To them, Bush is evil, Obama is good, Hillary Clinton is evil. The leftist Boomers overwhelmingly supported the Iraq war when it began, and now have decided that they should overwhelmingly have opposed the war. Their minds can't handle this conflict, resulting in the fury and anxiety and idiocy that I've been talking about.

The term "cognitive dissonance" was coined in the 1950s by Leon Festinger, who performed a fascinating experiment, described in his fascinating book, When Prophecy Fails.

Two members of Festinger's team infiltrated a religious sect predicting the end of the world by a specific date. The predictions were based on messages from extraterrestials known as the "Guardians" that one cult member, Mrs. Marian Keech, started receiving [p. 32]. The members of the sect would be rescued by flying saucers and then, four days later, there would be a huge flood drowning everyone left behind. The members of the sect were highly committed to this belief: Many had given up their families and all worldly belongings to join the other sect members in a vigil in a member's home, waiting for the end.

The first disconfirmation came when the flying saucers didn't show up at the predicted time. There were four wrenching days of waiting, as the saucers failed to come at each newly predicted hour, as specifed by Mrs. Keech as she continued to receive "messages." The final and biggest disconfirmation came after the four days were up, and the world did not end.

Although the group were a private sect, what they were doing had become known, and they received ridicule through the newspapers, and they received visits by people who believed them and people who ridiculed them. During the four-day wait, a couple of people, the people who had joined most recently, left the group, but everyone else stayed. Here's what happened:

Chaotic though they may seem, the days immediately preceding December 21 [the day that the floods were supposed to appear] were at least loosely organized around a dominant theme -- cataclysm and salvation. By dawn on the 21st, however, this semblance of organization had vanished as the members of the group sought frantically to convince the world of their beliefs. In succeeding days, they also made a series of desperate attempts to erase their rankling dissonance by making prediction after prediction in the hope that one would come true, and they conducted a vain search for guidance from the Guardians." [p. 174]

This is beginning to look very much like the behavior of today's leftist Boomers.

Another change of behavior was equally familiar today: Led by Mrs. Keech, the cult members began actively proselytizing. They had previously kept information about the cataclysm secret, "in order to prevent panic." [p. 129,182] But now they sought out even the most skeptical nonbelievers, in order to convert them. For example, one sarcastic commentator whom Mrs. Keech had repeatedly refused to speak with suddenly was welcomed with open arms. In fact, Mrs. Keech couldn't stop talked, as he recorded the interview, and answered all his questions in detail. [p. 175]

Another reporter who hosted a program on women's issues asked her to comment, and she spoke at length on what's wrong with education, and how the messages from the Guardians explained how to straighten it out. [p.176]

Hordes of reporters and visitors came to the house, resulting in an "amiable, manic uproar." [p. 177]

One further trend was noticeable on December 21. As the day wore on, Mrs. Keech began to make more and more of the importance of some recent news items. The morning newspapers contained an article about an earthquake in Nevada that had occurred about five days earlier, pointing out that if the quake had happened in a populated area, the destruction would have been enormous. Mrs. Keech showed the story excitedly to the members of the group, emphasizing the fact that, indeed, catalysms were happening.... Here, she declared, was evidence for the validity of the prediction. This theme ... grew in importance in reponse to further disaster news.

At about 2 p.m. both the Associated Press and the United Press called [Mrs. Keech] to inform her of earthquakes that had occurred that very day in Italy and in California. She took this news in stride, telling the inquiring editors that "it all ties in with what I believe." [p. 180]

The next day, the group put out a press release:

Press Release. "Due to the confusion which has arisen from the prophecy we have decided to unite forces to complete the prophecy.

It wa reported on the 21st that the cataclysm was stayed by the hand of the God of Earth. The date was given in order to alert the people to the possibilities in case of a disturbance so that we could avoid panic.

It has come to our attention that the Flying Saucers, or more correctly, the 'Guardians of Earth,' are here for a definite purpose. They have been surveying the earth where there are faults in the earth's surface and they are prepared to land in case of an impending emergency and evacuate some of the people before the disturbance occurs.

It is necessary for the people to be prepared and alert to the possibilities in order to avoid panic." ...

We wish to call the people's attention to the fact that there have been a number of violent disturbances in the past few years, particularly the one several years ago in Assam and Tibet, and more recently in the Mediteranean area and Wesstern United States." [p. 182]

We'll quote one more incident from the book, and as you read this, please think of the name: "Barack Obama."

On December 24 a new participant observer was introduced into the group. We shall describe his reception in some detail, for it stands in vivid contrast to the treatment accorded [previous visitors]. They were received politely, but somewhat distantly. The new observer was dined, wooed, and made the center of attention. As the reader will see, the warmth of his welcome is attributable in good measure to the hope and expectation that he, at last, would bring the group their orders, would give them a plan for the future. Had he done so, it would have provided independent verification of their beliefs.

The new observer knocked at the door ... and asked to speak to Mrs. Keech. He was ushered inside where he immediately became the center of attention. Let him tell the story in his own words:

"Mrs. Keech asked me why I had called and I told her I read about her in the papers and wanted to know more. [They] picked up pads of paper and with pencils poised and were apparently ready to record our conversation.

"The significance of this didn't immediately occur to me although I realized quite soon that what they were looking for was a sign of some kind, and thought I had a special kind of message to deliver. ... I said that one of my courses had dealt with a little astronomy and that this had aroused my interest in space travel and I wanted to learn more.... At this point she looked at me and suggested that there were perhaps some things that I could tell her and this increased my feeling of being on the spot.... I, of course, said that I had nothing to tell her and that I knew nothing, but wanted to learn....

The role that I assumed ... was that of a person who was somewhat confused by the times and was lonely and sought guidance and understanding of many of the things that are happening today. [I was asked] if I had ever felt if I didn't belong on this planet.... I answered, of course, that I had [no such knowledge], but simply that I thought that I had been born in the same way that everyone else is born. This brought a smile from Mrs. Keech who looked at me again with a very knowing look....

[In a phone call with a friend that evening, Mrs. Keech said], "And we had a very, very, very, very, very special guest for dinner.... So it has been the most joyous, the most joyous Christmas that any of us have ever known." ...

[There were repeated visits from the stranger, and Mrs. Keech kept pressing him for information. After several days, he finally met with Mrs. Keech alone and later described their conversation this way:]

"She said in a very, kind of last-straw voice -- that's the only way I can describe it -- she seemed sort of at the end of her rope and she said, 'Are you sure that you have no message for me? Now that we are alone, we can talk.' And I said, 'Gee, I'm sorry, I just don't know of any message that I have.' She said, 'Do you feel that there are any disturbing influences around? Anything that's disrupting your giving me a message?' I, of course, answered that I wasn't aware of anything of this sort." ...

The experiences of this observer well characterize the state of affairs ... -- a persistent, frustrating search for orders. [pp. 190-192]

There are many, many similarities in this story to the way in which the leftist Boomers are acting today.

The manic-depressive behavior that I've documented on this web site is reflected in this story. The manic period began when the stranger arrived: "And we had a very, very, very, very, very special guest for dinner.... So it has been the most joyous, the most joyous Christmas that any of us have ever known." The whole episode illustrates that we've seen in leftist Boomers, culminating in a depressive state with "a persistent, frustrating search for orders," or a persistent, frustrating search for a solution to the problem in Iraq, reflected in the unrealistic hopes that many on the left are placing in Barack Obama.

A couple of weeks ago, a Chicago Tribune columnist wrote this about the attitude toward Obama:

From now on, and especially when he formally announces his candidacy on Feb. 10, he'll have mobs around him, security people and media people, and handlers, and party and money people, and the Daleys, and reporters, all prancing about, endlessly excited.

Not all reporters prance when Obama's name is mentioned, but there are more than a few. I'm thinking of those who are so enraptured that they write in prose evoking the excited shrieks of adolescent girls squealing at the Beatles when Obama was a child. National media coverage of the man has become so ridiculous, all but embarrassing, and he knows it, what with a veteran political writer longing to follow him into a locker room, to glimpse those pecs made famous in a People Magazine photo."

What I especially want to emphasize is the changes in behavior of the committed sect members after the disconfirmations.

Leon Festinger describes several ways in which the group members started proselytizing, starting with publicity seeking: "Most dramatic, of course, was the precipitous change in attitude toward the press." [p. 209] Whereas previously they had maintained secrecy and avoided the press, "This situation reversed itself with explosive immediacy within minutes after the group had developed the rationalization for the major disconfirmation on December 21." [p. 210] The visit by the stranger was especially striking: "In part, his reception is attributable to their clear need for guidance; in part, to their hope of confirmation, so desperate that a complete stranger is nominated as one of their elect -- a Guardian." [p. 211]

This is the behavior that I've been seeing over and over. Chris Matthews, who might previously have thought certain things without saying them, now is melting down, ranting and raving, invested in the belief that the President is evil and stupid. Robert Reich, who never predicted anything prior to last August, now desperately and openly predicts a bloodbath in 2008 in the hope of gaining confirmation for his political beliefs. And the entire Boomer left is going through a manic-depressive process which might end up anywhere.

However, as I said at the start, this article uses the Boomer left as examples, but its about the Boomer generation, not just one part of it.

In fact, it's not even just about the Boomers. The "Baby Boomer" generation is America's name for the generation born after World War II. For Generational Dynamics, the any generation born right after a crisis war is called a "Prophet generation," because they end up guiding the society or nation into the next crisis war.

What we're seeing here is the transformation of the Boomer generation into a generation of angry, desperate fanatics.

Why is this a problem? Because it's very, very dangerous. This fanaticism is a disease that can lead to disaster:

What we've all seen is that the Washington Boomer population really is in a state close to total hysteria and fanaticism. Everyone was giddy on December 6. Now, like a bunch of manic-depressive people drug addicts, the Boomers in Washington have gone thoroughly into the depressive phase. Everything is now a disaster and chaos. All is lost. Death is the only possibility.

The Washington crowd are in a depressive phase, and anyone who's depressed will grasp at anything to relieve their anxiety, and so Obama has been getting the "manic" treatment. Sooner or later the press will turn on Obama, and then he'll see what it's like to get the depressive treatment.

Friedrich Nietzsche, the German philosopher, lived through the Franco-Prussian war and the extremely bloody Paris Commune civil war in 1871, and saw the same craziness; that's presumably what he meant when he said, "Insanity in individuals is something rare - but in groups, parties, nations and epochs, it is the rule."

And at some point we'll see the result. Any international crisis in any country with Prophets as leaders will exhibit the same insanity that Nietzsche described. Any international political crisis, any bursting of any of the many financial bubbles that are currently extant, could cause a chain reaction. The United States would be blamed immediately (isn't it always?), the Prophet generation would quickly turn into a bunch of raving lunatic fanatics (as had already happened in Washington, incidentally), and our young Hero generation will start packing for war. (12-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Palestinians rejoice over Fatah/Hamas peace as Arab/Jewish violence in Jerusalem escalates

Gazans were dancing in the street on Friday, as word came from Mecca that Saudi King Abdullah succeeded in brokering a peace deal between Fatah and Hamas, creating a unity government.

According to a University professor in Gaza: "The vast majority of people are really jubilant. We could hardly sleep last night because of the celebrations on the streets. People who were shooting at each other a few days back were hugging and kissing and chanting unity slogans; flying the Palestinian flag together. I hope this will lead to the end of the financial boycott. But wishes do not always come true."

It's the professor's last point that highlights a lot of problems. The peace deal did indeed create a unity government, specifying which ministers are going to be from Hamas and which from Fatah.

The whole purpose of a unity government, at least as far as the West is concerned, is that the unity government would recognize Israel and renounce violence.

Unfortunately, the peace deal doesn't even mention these questions, which will be a problem for the Palestinians.

The whole purpose of a unity government, as far as the Palestinians are concerned, is that the U.S., Europe and Israel would finally remove the financial boycott that began in January of last year, when Hamas took control of the government. But it seems unlikely that the West will back down from their principle demands that the unity government recognize Israel and renounce violence.

From the point of view of Generational Dynamics, this peace agreement is almost completely meaningless, and may actually make things worse.

The reasoning behind this conclusion is as follows: The Palestinians are in a generational Crisis period, and the fighting between Fatah and Hamas comes not from the senior leaders, but from the college age youths. (Recall that Gaza is very densely populated, and the median age is 15.8, and so Gaza is essentially run by children with guns and missiles.) So a peace agreement that assigns ministerial positions to various Fatah and Hamas dinosaurs will not resolve the issues of the youthful warriors.

Even worse, if the unity agreement doesn't bring forth an end to the Western boycott, then it will be completely meaningless to them.

In one scenario, it could re-direct the anger of the youthful warriors away from each other toward Israel. That's because the refusal of the West to lift the financial boycott might convince them that the time had come to smash a hole in the barrier and attack the Israelis.

That gives greater significance to the rioting that occurred in Jerusalem on Friday afternoon, when 200 Israeli riot police used tear gas and stun grenades against 3000 rock-throwing Muslim worshippers.

The rioting occurred at a construction project to repair a ramp leading to the Al Aqsa mosque, the third holiest site in Islam, where it is believed that the prophet Mohammed ascended to heaven. However, it's also known as Temple Mount, and its Western Wall is the holiest site in Judaism.

As far as I can tell from the news stories, the contruction project is a perfectly reasonable one. The Israelis claim that the existing ramp is in need of repair and could collapse and harm anyone visiting the mosque. The Israelis claim that they're not digging anywhere near the Mosque, but some Palestinians are claiming that the Israelis are using the construction project as a cover to dig a tunnel under the Mosque, though I don't know why they'd want to do that.

As a footnote to this situation, I have to question what the BBC is doing. I heard several BBC reports on the situation on Friday, and they all said some variation of the following: "When Muslims around the world see these pictures of violence in Jerusalem, the entire Muslim world will be inflamed."

If that's true, then why is the BBC showing the pictures? The way they kept saying the same thing over and over really gave me the feeling that they were trying to incite violence in Muslims. Well, who knows what's going through the screwy minds of the BBC producers anyway?

At any rate, the Jerusalem riots petered out within a few hours, though they may revive on Monday when construction begins again.

The most likely explanation of the protests to the ramp project is that they come from more extreme Palestinians who are hoping that it will trigger a "third Intifada" against Israel.

The first Intifada began in 1989, and consisted of Palestinians throwing rocks at Israelis. It ended with the Oslo peace agreement in 1993.

The second Intifada began in 2000, and was triggered by a really trivial event: a visit to the same Temple Mount by Israeli opposition leader Ariel Sharon.

Now, when a trivial event triggers a major result, it's always something of great interest to Generational Dynamics, because it signals a generational change in attitude and behavior that has been building for some time. The trivial event is not the "cause" of the major result. The trivial event can be looked on in several ways: As the "straw that breaks the camel's back," or even as "an excuse" for a new generation to make itself heard.

The most interesting example of this for Americans is the Boston Tea Party of 1773. This was a really trivial event -- a bunch of kids who wanted to protest the British tea tax dumped some tea into the sea as a prank. At almost any other time and place in history, this would have "caused" nothing but the arrest of the kids. But instead it symbolized a massive generational change that's remembered in history as leading to America's Revolutionary War.

Within Generational Dynamics theory, we look on these things from the point of view of Chaos Theory.

Most readers have probably heard of the "Butterfly Effect" in weather forecasting: if a butterfly in China flaps its wings, then it can start a chain reaction that leads to a hurricane in America a week or two later. This idea, that a tiny event can lead to major consequences, was popularized in the 2004 movie, The Butterfly Effect, starring Ashton Kutcher.

What the butterfly effect means to weather forecasting is that we'll never be able to forecast the weather any better than we can today. No matter how good the science is, no matter how fast the computers are, it's mathematically impossible to predict the weather accurately for more than a few days in advance, since even the tiniest perturbation can cause major changes to the forecast.

Exactly the same principle is true in political forecasting. The reason that all the analysts, journalists and pundits constantly get their predictions wrong is because their predictions are always defeated by some chaotic event, some unforeseeable little thing that has big consequences.

The reason that the Generational Dynamics predictions on this web site are always right is because we stick to trend predictions, like the May, 2003, prediction that the disappearance of Yasser Arafat would be part of a generational change that would lead to a major genocidal war between Arabs and Jews. In terms of weather forecasting, this prediction is like saying that summer is hotter than winter; it's a trend prediction that's almost mathematically certain. Analysts and pundits don't do that. Their predictions are all guesses, and those predictions are as good as flipping a coin.

Most analysts' predictions are like the following: "The outdoor temperature last week was in the 40s, this week it's in the 30s, therefore I predict that next week it will be in the 20s." This kind of prediction is obviously wrong, but it's what the analysts all do. That's why the great and admired pundits of our time, such as Thomas Friedman or Andrew Sullivan or Chris Matthews say such meaningless things that turn out to be wrong time after time after time.

If you want to predict the weather more than a few days in advance, you have to use trend predictions. You can say, "we're headed towards summer, so the temperatures each week will be 'attracted' to increasing warmth, and so temperatures are likely to rise each week from now on." That doesn't tell you what the temperature will be next week, but it does tell you the most probable direction that the temperature will go in.

Similarly, if you want to make political predictions, you have to use trend predictions. The trend is for Arabs and Jews to head for a new genocidal war, re-fighting the war of the late 1940s when Palestine was partitioned and the state of Israel was created. And so I've predicted many times that things will only get worse in the Mideast, and that's exactly what happened, especially since the death of Yasser Arafat. You can go back and look at the history on a day to day basis, and you'll find that on almost every day since then, with very few exceptions, the Palestine region has descended further and further into chaos, moved closer and closer to war. This is as predictable as the increase in temperature as summer approaches.

However, now let's take a look at the other side of the "butterfly effect." Suppose you see a butterfly sitting on a leaf and you blow on it to make it flap its wings. Does that mean we'll have a hurricane? No, of course not. It might cause a hurricane, but the chances are very small. There's no way to predict when any "small event" will have big consquences; in fact, you can predict with almost certainty that no small event you can think of will have big consequences. The big consequences all seem to be caused by small events that no one ever thought about before.

And all this theoretical stuff is important, because it tells us something about what was going on in Jerusalem on Friday.

The reason that Palestinian agitators were trying to stir up trouble at the Al Aqsa Mosque on Friday is because they were hoping to trigger a "third Intifada," just as Ariel Sharon's visit triggered the second Intifada.

But that's completely wrong. Just as blowing on a butterfly almost certainly won't cause a hurricane, stirring up trouble at Al Aqsa almost certainly won't cause a new Intifada.

That's where the BBC was making its mistake as well. They kept showing the same pictures of violence over and over, and they kept blathering, "These pictures are going to inflame Muslims around the world." They assume that if Sharon's visit in 2000 caused the second Intifada, then the current problems will have some similar effect. But in fact, a simple understanding of Chaos Theory shows that they're dead wrong.

And that's why the BBC is wrong about so many things, just as all the major esteemed analysts and pundits are wrong about so many things.

Incidentally, this isn't the first time that someone hoped to trigger widespread violence by demonstrating at this same location.

Exactly the same kind of thing happened in April, 2005, but this time it was Jewish extremists who tried to use Temple Mount to trigger violence by Palestinians. The Jewish extremists were trying to force Prime Minister Sharon to back down from his plans to evacuate Jewish settlements in Gaza, and they hoped that a new Palestinian Intifida would accomplish exactly that.

So these Jewish extremists made the same mistake that the Palestinian extremists made this week, the same mistake that the BBC and other pundits are making -- the assumption that a repeat of a previous "small event" will have big consequences again. That almost never happens.

There is one other example of a "small event" that inflamed the Muslim world. I'm referring, of course, to the Danish cartoon controversy. In this case, a tiny decision by a Danish magazine to publish cartoons depicting Mohammed exploded into worldwide confrontations between Muslims and Westerners. That's another "butterfly effect" that no one could have predicted before it happened.

While we're at it, let's relate this to the prediction of an international panic and financial crisis that we've been predicting. The Hamburg crisis of 1857 (panic of 1857) was triggered by a small event -- an employee of the New York branch of the Ohio Life Insurance and Trust Company was found to have embezzled money. As for the Wall Street crash of 1929, no one, to my knowledge, has identified any "small event" that triggered that crash; perhaps the event was so small that no one even noticed. Today, with so many huge and growing global financial imbalances, we're overdue for a new international financial crisis, but it's impossible to predict what "small event" will cause the generational panic leading to this crisis. We can only be certain that it's coming.

From the point of view of Generational Dynamics, the Mideast is headed for a major genocidal war between Arabs and Jews. Only this final result can be predicted; none of the scenario details leading up to that war can be predicted or will be known until they happen. All of the "small events" that will trigger big changes will be recognized only after they occur. No one can "make it" happen before it's time has come. We can make a probabilistic prediction that the Mideast will descend further into chaos each and every day, with few exceptions. But the final trend result, a major genocidal war between Arabs and Jews leading to and part of the Clash of Civilizations World War can be predicted with absolute certainty. (10-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Rapid collapse of ABX index indicates that investors may be starting to panic

Reacting to news from two major banks about sharp losses from their subprime mortgage businesses, investors began running for cover on both financial stocks and related credit derivatives.

HSBC Holdings plc, an international banking firm headquartered in Europe with over 125 million customers worldwide, issued a press release on Thursday stating that it was now expecting to have $1.75 billion in bad debts that it hadn't previously anticipated.

The culprit was a subsidiary, Household Finance Corp., a venerable old American consumer credit firm that HSBC acquired in 2003. Now known as HSBC Finance Corp., the subsidiary had written a bunch of subprime mortgage loans that are turning out to be bad.

Subprime mortgage loans are those offered to people with poor credit who are willing to pay higher interest rates. As we described earlier this week, these loans have been abused, so much so that loan officers may be held accountable for fraud when the crash occurs.

Here's how HSBC described the situation in their press release:

"The impact of slowing house price growth is being reflected in accelerated delinquency trends across the US sub-prime mortgage market, particularly in the more recent loans, as the absence of equity appreciation is reducing refinancing options. Slower prepayment speeds are also highlighting the likely impact on delinquency of higher contractual payment obligations as adjustable rate mortgages reset over the next few years from their original lower rates."

Don't you just love that kind of language? HSBC's stock fell 2.4% on Thursday.

At almost the same time, another major institution, New Century Financial Corporation, issued its own press release, saying that it was going to have to revise its financial statements from the last two quarters of 2006, and that it now expected to lose money. Here's how they put it:

"The increasing industry trend of early-payment defaults and, consequently, loan repurchases intensified in the fourth quarter of 2006. The company continued to observe this increased trend in its early-payment default experience in the fourth quarter, and the volume of repurchased loans and repurchase claims remains high.

In addition, the company currently expects to record a fair value adjustment to its residual interests to reflect revised prepayment, loss and discount rate assumptions with respect to the loans underlying these residual interests, based on indicative market data. While the company is still determining the magnitude of these adjustments to its fourth quarter 2006 results, the company expects the combined impact of the foregoing to result in a net loss for that period."

Its stock fell 36% on Thursday.

In fact, shares of mortgage lenders fell across the board Thursday. Countrywide Financial Corp. and IndyMac Bancorp., the two biggest independent U.S. mortgage lenders, each fell more than 2 percent. Novastar Financial Inc. fell 13 percent to a new 52-week low. In fact, the entire financial services sector was hit hard, including firms like Citigroup Inc. and JPMorgan Chase & Co.

Why did the prices of these stocks go down on Thursday? Because investors concluded that they'd earn less money than they'd previously thought, the price that investors are willing to pay for stocks bears some relationship to the amount that the underlying company earns.

So, do you follow this so far, dear reader? Because we're now going to take a turn into a magic world, the world of credit derivatives.

Because the difference between the stocks of those companies and the derivatives we're going to talk about now is that these derivatives have no underlying value whatsoever. Their value is whatever anyone is willing to pay for them.

There's one particular credit derivative we want to describe. It's the ABX-HE credit derivative. It permits the investor to make a bet on whether or not people are going to repay their mortgage loans.

What? A bet? Is this Las Vegas or something? No, it's Wall Street.

The ABX-HE derivative was created in January, 2006. Here's how someone quoted in an article from last April described it:

"It is a new liquidity pool focused around the idea of the credit of an entity or a structure: an entity meaning a corporate and a structure meaning an ABS. It broadens the ability to begin trading credit as well as people's ability to take or lay off risk around a specific credit."

It's a superlative example of English language speech, isn't it.

But let's just focus on a few words: "It is a new liquidity pool."

What that means is that a bunch of investors throw their money into a pot, and some of them make money and some of them lose money. It might be a bet on a horse race, or it might be a bet on a roulette wheel. But it's none of those; it's a bet that someone else will or will not default.

When you bet your money on this crapshoot ..... errr, I mean credit derivative, you get shares in return. These shares can be bought and sold, with the following intent: If the price of the shares go up, then we believe people are going to be paying off their mortgage loans; if the price goes down, then we believe that people are going to default on their mortgage payments.

The current price of these derivatives can be found on We're going to focus on just one of these shares, the ones that were issued for sub-prime mortgages being issued in July, 2006. That index has the name: "ABX-HE-BBB- 06-2". Here's the graph of the index price from August to Thursday:

Index price of ABX-HE-BBB- 06-2 from August to Thursday, 8-Feb. <font face=Arial size=-2>(Source:</font>
Index price of ABX-HE-BBB- 06-2 from August to Thursday, 8-Feb. (Source:

The index price of these shares has been falling since August, and on Thursday took another extremely sharp fall, quite possibly a record fall.

If you're an investor, one way to use these derivatives is to buy insurance that someone else is going to pay off their mortgage loans. Last July, it cost $242,000 to purchase this kind of insurance on $10 million of subprime loans. At the current price, it now costs $686,000 to purchase insurance for the same thing. It was was around $600,000 just a couple of days ago.

Thursday's collapse in the ABX index is being called a "very violent bearish reaction" by one ABX trader.

In fact, Thursday's price fall was actually much greater than was justified by the problems at HSBC and New Century. That means that investors are panicking.

Now, maybe investors will regain their confidence tomorrow, or maybe they'll look at the massively increasing default and foreclosure rate and decide to panic even more. It's hard to predict panic.

Web site readers often ask me to provide them with the exact date that I expect a crash to occur, and after much experimenting with different wordings, I finally came up with the words that I use very often on this web site: It might be tomorrow, next week, next month, next year, or thereafter, but probably sooner rather than later. It's a phrasing that allows me to convey a sense of urgency without specifying an exact date.

But lately several readers have asked a different question: What exactly is going to happen? Is there a specific stock market index we should look for, or what?

There will, of course, be a sharp fall in stock prices, but that's the point. What's going to happen is something that we haven't seen in this country since 1929: A "generational crash."

The first one that historians have documented is known as "Tulipomania." The high-tech item of the early 1600s were tulips. Dutch botanists succeeded in using breeding techniques to create tulips with spectaculars colors that were sought by the wealthy. Investors all over Europe soon purchased a kind of "tulip future," a certificate purchased in the fall which can be traded for a specific actual tulip to be grown the following spring. Sounds like an ABX certificate, doesn't it?

In 1636, speculation in tulip futures went through the roof, and on February 3, 1637, the tulip market suddenly crashed, causing the loss of enormous sums of money, even by ordinary people.

Everyone who lived through that horror never forgot it, but by the 1710s decade, all those people were gone. There was a similar generational crash of the South Sea Bubble in 1721. Then there was the bankruptcy of the French Monarchy in 1789, leading to the French Revolution and the Reign of Terror. Then there was the Hamburg Crisis of 1857, called the Panic of 1857 in America. And then there was the Wall Street crash of 1929.

There have been, of course, many small or regional economic recessions, but there have been only five major international financial crises, the generational crashes. Each one occurred roughly 70-80 years after the previous one, just when there's no one left who remembers the last one.

What's a generational crash like?

We saw a little bit of it a year ago, when a high-flying Japanese internet portal firm, LiveDoor, came under suspicion for financial irregularities. Investors panicked, causing a bloodbath in both Japan and New York, with stock markets around the world suffering similar shocks. However, the loss of confidence didn't continue, and the markets worked there way back.

With a generational crash, what I'm talking about is a massive loss of confidence throughout the country and the world, total destruction of self-confidence, replaced by a corrosively growing fear, leading to panic, massive homelessness and bankruptcies. We're actually overdue for that, just as we're overdue for a flu pandemic. When that happens, you'll know it. And yes, it might happen tomorrow, next week or next year, but probably sooner rather than later. (9-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

In Mexico, violent crime from drug cartels increases with tortilla prices

After Acapulco incident, Canada may advise citizens not to travel to Mexico.

In a brazen crime on Monday in Acapulco, killers from drug cartels dressed as soldiers came to do a "weapons inspection" at two police stations. After disarming the policemen, they then killed several police officers and a police commander. To add insult to injury, the drug cartels videotaped the crime, though the videotape has not yet been "released."

This is only the latest in an increasing level of violence occurring throughout Mexico. Many of these incidents have harmed Canadian tourists and Canadian Foreign Affairs Minister Peter MacKay was in Mexico City on Wednesday to discuss, among other issues, whether or not Canada should issue a travel advisory, advising Canadians not to travel to Mexico unless absolutely necessary.

In fact, if you look at the Canadian government's current travel advisory for Mexico, it's quite chilling. It warns of being drugged, assaulted, raped, robbed, or car-jacked. A common crime is to force someone to go to an ATM and use a credit card to withdraw money, which is then taken. Even legitimate police officers extort money from tourists. (Similar warnings are provided on the American State Dept. travel advisory for Mexico.)

The increase in crime is related to increasingly powerful drug cartels. President Felipe Calderón has announced an effort to control drug cartels with thousands of troops, but Tuesday's murders in Acapulco police stations were a clear message from the drug cartels that they can murder whomever they want despite the government's attempts.

The increase in crime has gone hand in hand with increases in Mexican poverty. Mexico still has huge pockets of poverty, as population has become increasingly dense and its oil revenue seems to have peaked.


Now, a truly bizarre situation has arisen having to do with the sudden rise in the price of tortillas.

The price of Mexican tortillas has almost doubled in the last year. This is causing big problems because tortillas are a dietary staple of the entire Mexican population, both rich and poor, just like rice for the Chinese and donuts for Americans.

Tortillas are made of corn. The price of tortillas has risen because the price of corn has risen. Why has the price of corn risen?

Because, believe it or not, many U.S. states are requiring automobile fuel to contain 10%-85% ethanol added to the gasoline, to meet clean air standards. In 2006, the use of ethanol skyrocketed, and it will increase even more in 2007. So what? Well, ethanol is made from corn, and the increased diversion of corn into ethanol is causing prices to increase sharply. This would be funny if it weren't so serious, and the problem is going to get worse.

Last week, hundreds of thousands of protestors were in Mexico City protesting economic problems, especially tortilla prices. President Calderón is attempting to implement a "tortilla pact" with business to control tortilla prices, but it probably won't work if corn prices keep going up.

Mexico's last crisis war was the Mexican Revolution, running from 1910-1922, so Mexico is deep into a generational Crisis era, and overdue for a new crisis war.

Mexico is like other Latin American countries in that the major fault lines are between the indigenous peoples ("Amerindians") and the people of European ancestry. The indigenous peoples in Mexico are the Mayans in the south and the Aztecs and Commancheros in the north. The Europeans -- descendants of Spanish or French -- generally live in the center, around Mexico City. During the Mexican Revolution of the 1910s, Pancho Villa (from the south) was the leader, along with Emiliano Zapata, of the indigenous rebel insurgency groups.

From the point of view of Generational Dynamics theory, Mexico presents a puzzle, because it's gone 84 years without a crisis war, and we'd like to understand why. Actually, 84 years isn't exceptionally long, since historically some 15% of all crisis wars have begun 80 or more years after the end of the previous one, but it is above average, and we'd like to understand better what are the factors that increase the number of years between crisis wars.

The following table summarizes the historical findings, and also identifies several countries currently in each generational era:

#years  of total  Generational Era           Country examples today
------  --------  -------------------------  -----------------------------
 0- 40      0%    Recovery, Awakening	     Iran, Iraq, Syria, Lebanon, Vietnam
41- 49     11%    First half of Unraveling   Colombia, Venezuela
50- 59     33%    Second half of Unraveling  Israel, Palestine, China
60- 69     25%    First half of Crisis	     U.S., Europe, Japan
70- 79     16%    Second half of Crisis      Russia, Saudi Arabia, Morocco
80+        15%    "Fifth Turning"	     Mexico, Haiti

This table shows the %-age of crisis wars that historically have occurred in each of the generational eras, based on the number of years since the end of the previous crisis war. The last column lists examples of countries that are in that generational era today.

There are several countries today that are overdue for a crisis war, and what they all appear to have in common is unexpected money. These include Saudi Arabia, Morocco, and Russia (oil money), Haiti and Gaza (international contributions), Mexico (oil, drug cartel and remittance money from U.S.) and China (export sales, bubble economy).

China has a stated policy of providing as much food as possible to everyone, in order to prevent a massive national rebellion. China is very paranoid about this (as they should be, given their history), and has had tens of thousands of regional rebellions every year for several years now. The only "weapon" that China has to prevent a nationwide rebellion is plenty of food distribution, and that requires plenty of money, which they have right now, thanks to their bubble economy.

Gaza is not overdue for a crisis war yet, but it's possibly the most densely populated region in the world, with large pockets of poverty. It's believed that high population density and poverty tend to cause crisis wars to occur earlier, while plenty of money can delay crisis wars.

The Palestinians have depended on large international contributions, mostly from Europe and the U.S., but those were cut off in January, 2006, when an election gave Hamas control of the government, and the region now appears to be very close to a civil war between Fatah and Hamas. Saudi Arabia has called representatives of Hamas and Fatah to Mecca for a "last chance" meeting to hammer out a peace accord. Rumor has it that the representatives won't be allowed to leave the room until they agree to a unity government. One particularly contentious possible outcome is that Saudi Arabia may agree to make up the international contributions out of its oil income, and they won't demand that the unity government recognize Israel or renounce violence. This would be an extremely ominous outcome, though probably no more ominous that having a full-scale civil war between Fatah and Hamas.

So there's a common thread here: From the point of view of Generational Dynamics theory, we believe that more money postpones crisis wars, and poverty speeds them up.

The reason that genocidal crisis wars are necessary is that the population grows faster than the food supply. People who sing "Kumbaya" and hug and talk of everyone loving one another and living without war don't understand that when one person lives, another person must die because there isn't enough food for both of them. The problem has been made much worse in the last century because of dramatic declines in infant and child mortality, resulting in much faster population growth.

From the point of view of Generational Dynamics, we're approaching the Clash of Civilizations world war, at a time when infant mortality has fallen far, leading to masses of people, packed by the millions into large megacities, in a fragile world where any economic dislocation can cause mass starvation, creating huge pools of young men ready for war.

And one of the largest megacities in the world is Mexico City, the capital of Mexico, with some 20 million people. When the price of tortillas goes up, it might almost seem like a joke to us (since comedians will tell you that "tortilla" is a "funny word"), but in Mexico City it could literally mean starvation for hundreds of thousands of people.

A major financial crisis will strike Mexico very hard (as well as many other countries with poverty-stricken megacities). Generational Dynamics predicts that Mexico is headed soon for a new civil war along the European/indigenous fault line, and that this civil war will spill over into the southwestern U.S., especially in California where 1/3 of the population is Mexican. (8-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

As housing collapses, subprime mortgage loan officers may be held accountable for fraud

The Realtors' economist David Lereah illustrates the Principle of Maximum Ruin.

While the housing market continues to slip, most investor attention is being focused on a particular aspect: The extremely high failure rate of subprime mortgage loans.

In the "old days," when financial managers were still people who had lived through the horrors of the 1930s Great Depression, you would buy a house by paying 30% of the purchase price (the "down payment") in cash (from your savings account), and you would pay the other 70% by obtaining a mortgage loan from a bank, to be repaid by means of monthly payments for 30 years. You would use the house as collateral, meaning that if you were unable to make the monthly payments, then you would lose the down payment and the house. The bank would take possession of the house, evict you, and then auction the house off to someone else for as much money as they could get.

When the Boomers started taking over leadership positions in the 1980s, credit became much easier to obtain. The amount of required down payment was reduced to 20%, sometimes as little as 10% or even 0%. This was justified by the fact that the homes were gaining in value, so the mortgage principal would (theoretically) equal 80% of the home's increased value within a year or two anyway. But lenders still verified that borrowers had enough income to make the monthly payments.

Another recent change was "no documentation loans," which permitted people, such as people who work on commission and can't prove their income, to qualify for a mortgage loan by paying a higher interest rate. That phrase isn't always entirely accurate though, because often the banker would require alternate documentation instead of no documentation. For example, even if a borrower isn't required to prove his income, he may still be required to list his assets and debts.

However, things have completely unraveled in the last three years, thanks to the housing bubble. With housing values increasing 10-20% per year, why worry about anything? The buyer could "flip" the house by holding it for a few months without even living in it, and then sell it for a lot more money. If the buyer didn't make his payments, the bank could "flip" the house in the same way. The result is that lending institutions have become even more careless about verifying buyer documentation, with the result that many subprime mortgage borrowers cannot afford the payments.

Now, at the beginning of 2007, it's been over a year since the housing bubble began to deflate. It was already fully apparent in August, 2006, that the housing market was collapsing faster than economists had expected.

Housing prices fell throughout most of 2006, obliterating the assumptions under which the careless lending rules were devised.

As a result, buyer defaults have been increasing, and a study by UBS Investment Bank of subprime mortgages made in 2006 found that the default rate is so high that subprime loans made in 2006 are on track to be the worst-performing class of loans ever issued.

In fact -- and this is really a killer issue -- many buyers are unable to make even the FIRST PAYMENT of the loan. From the buyer's point of view, the plan was to purchase the house with no investment at all, flip the house and sell it at a higher price. But if prices are falling, then the buyer realizes that any mortgage payments he makes are simply lost money, so rather than make even one payment, he defaults and lets the bank take posession.

"First payment defaults" are considered a special category of default because they may be a sign of fraud; that is, if a buyer never intended to make payments on the mortgage loan, then he's defrauded the mortgage lender.

Who makes money in this situation? An intermediary like a loan broker does. He brings the home buyer and mortgage lender together, and makes sure all the proper paperwork gets filed. By the time that the buyer has defaulted, the loan broker has already made his commission on the mortgage loan.

In fact, the amount of outright fraud is higher than most people think. In some regions, fraud may have been involved in as much as one-third of all subprime loans.

One type of fraud involves the use of "straw buyers," people who have no intention of living in the home they're buying or even "flipping" it and reselling. They collude with homebuilders to purchase the house at inflated rates, and then immediately default on the mortgage loan. The homebuilder and the straw buyer split the proceeds from the fraudulent sale, and the bank is stuck with the overpriced house.

Now, an article in National Mortgage News is beginning to ask the question: Should loan brokers be held accountable when the buyer defaults on an early payment? This could mean that he could be required to provide restitution to the lending institution of any money they've lost, and it could even mean criminal fraud charges against the loan broker for conspiring in the fraud.

I've already written several times that many hedge fund managers and investment advisers may be guilty of criminal fraud. These advisers have a fiduciary duty to their clients to provide the best advice. If however, an investment advisor or hedge fund manager protects himself while collecting commissions from clients whom he advises to invest more, and then a major international financial crisis occurs causing clients to lose their investments, the fact that the adviser protected himself can be considered evidence that he purposely misled his clients, and that would be criminal fraud.

And you can be sure that furious clients will be only too delighted to see all such people get skewered as painfully as possible.

Now we see where these charges can also extend to loan officers. If, for example, a buyer lied on his application in order to qualify for a loan, but the loan officer didn't check that the application was valid, then the lending institution can claim that the loan officer purposely avoiding checking in order to collect a commission. Once again, that's criminal fraud.

In fact, the mortgage lending industry is getting hit very hard. A new web site, "The Morgage Lender Implode-O-Meter," has been tracking the collapse of mortgage lending firms as they occur, and as of this writing, 18 lenders have gone out of business since December, 2006.

That lenders are going bankrupt won't be surprising when you realize that the number of foreclosures in 2006 is up 42% from 2005. Much of this is caused by incompetence by loan brokers, and complicity in fraud by buyers.

And we can't end this article without talking a moment about Mr. David Lereah, the chief economist at the National Association of Realtors.

Each month, when the Realtors' housing report comes out, Lereah provides commentary on the real estate market. He's become the butt of a number of jokes because his commentary is always the same: The housing market is getting better. He's been wrong almost every month for over a year.

A recent article by MarketWatch has tracked some of the unrealistic statements made by Lereah in the past year: "The market is in the process of normalization" in January; "Home sales will move up and down somewhat over the remainder of the year but stay at a high plateau" in April; "The market should even out just below present levels" and "The market is stabilizing" in July; and finally, "The good news is that the steady improvement in sales will support price appreciation moving forward" and "It appears we have established a bottom" last month. Each month's statement has turned out to be overly optimistic and wrong.

But David Lereah hasn't just become famous now. One person has been tracking his optimistic statements in a David Lereah Watch blog since August, 2005.

Will David Lereah be charged with criminal fraud after a housing bubble crash? I don't know the answer to that question; it probably depends on whether he's lying or incompetent.

What we're seeing here are examples of what I've been calling "The Principle of Maximum Ruin." This principle states that the maximum number of people will suffer the maximum amount of ruin in a crash. That's because people like David Lereah will convince people to continue to make unwise investments.

I devised this principle after reading what happened in the 1929 stock market crash, as described by economist John Kenneth Galbraith in his 1954 book The Great Crash - 1929:

"A common feature of all these earlier troubles [previous panics] was that having happened they were over. The worst was reasonably recognizable as such. The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune." (p. 108)

Galbraith shows what happened after the initial crash on October 24, 1929: "In the first week the slaughter had been of the innocents," in the second week it was "the well-to-do and the wealthy" who were slaughtered (p. 113), and then more and more people were sucked into ruin during the years that followed.

People like David Lereah and overly optimistic financial advisers convince more and more people to invest more and more money, especially when buying stocks on margin (credit):

"The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost. The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. ... The bargains then suffered a ruinous fall. Even the man who waited out all of October and all of November, who saw the volume of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or fourth of the purchase price in the next twenty-four months. ... The ruthlessness of [the stock market was] remarkable." (p. 109)

From the point of view of Generational Dynamics, we're in the first stages of this same process. Advisers who stand to make commissions by providing overly optimistic advice draw more and more people into the bubble market, whether it's the housing bubble market or the stock bubble market. No matter what happens, these advisers always say that everything is OK, and they draw in more money and more investors, until the maximum number of investors suffer the maximum amount of ruin. The Principle of Maximum Ruin. (6-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Politicians are behaving increasingly anxious and desperate

Once again, there was little that made sense on the Sunday news talk shows.

Senator John McCain, speaking on the ABC show, explained what would happen if we withdraw from Iraq:

"If we withdraw, you'll see a level of violence that will exceed anything that we have seen. You'll see a bloodletting in Baghdad that makes Srebrenica look like a Sunday school picnic. If we leave, we'll have to come back at some time, because the Sunnis, Turks and Kurds will be involved."

Well, as it turns out I wrote an article on the Srebrenica massacre, when the survivors were commemorating the 10th anniversary in 2005.

But, as I've explained too many times to count, Iraq is not in a civil war, and even if you insist on calling what's going on today a "civil war," it still can't spiral up into a Srebrenica-like massacre for many decades. That's because Iraq is in a generational "Awakening" era, and a Srebrenica-type massacre is impossible except in a generational "Crisis" era, and Iraq is decades away from that.

So once again, we went through another day of discussion based on entirely wrong assumptions. This means that many possible solutions are being discarded because of the supposed danger of a Srebrenica-like massacre. This is a HUGE PROBLEM in today's government policy-making, and mistakes like this can cause disasters.

Senators Hillary Clinton and Chris Dodd express look anxious and furious as they addressed their Democratic party colleagues on Friday. <font face=Arial size=-2>(Source: ABC)</font>
Senators Hillary Clinton and Chris Dodd express look anxious and furious as they addressed their Democratic party colleagues on Friday. (Source: ABC)

America is, of course, currently in a generational "Crisis" era, and one way to see that is how desperate and angry the politicians are getting. This was very apparent on Friday, as can be seen from the adjacent screen shots, depicting their facial expressions when they were addressing their fellow Democrats on Friday. Typical comments were to the effect: "George Bush is incompetent" and "George Bush is stupid" and "George Bush sucks." It's not too easy to tell the speeches apart.

This has its humorous side, of course, and the politicians are so paralyzed by their own bickering that they can't even vote themselves a pay raise. This is one of the few things about today's situation in Washington that still gives me a chuckle.

Actually, I got another chuckle on Sunday morning when George Will described how the Democrats are competing in a kind of auction to decide who can be the first to end the war:

There's an auction underway. There's a bidding war.

Hillary Clinton said this (on Friday): "If we in Congress don't end this war before January of 2009, as president, I will." That means, she said [she'll end the war in] 23 months.

Edwards says, bring 50,000 out now, and the rest within 18 months.

Senator Obama said, "Pikers! No, 14 months."

Governor Richardson in New Mexico said he wants them out in this calendar year. That's a little bit less than 11 months.

But Mr. Vilsack, not to be outdone, says he wants them out immediately.

The only way you top that is by saying you want the troops out by last Thursday. And I assume that someone will say that soon.

One reason that George Will's speech is so funny is because the politicians look like morons doing this, especially since none of them is willing to challenge the belief that if we withdraw then we'll have that Srebrenica-type massacre that John McCain was talking about. That's part of the "common wisdom" in Washington now.

The other reason that this is so funny is because all they're doing anyway is screaming and yelling at each other like a bunch of teenage girls, since the most they're going to do about it is pass a non-binding resolution whining about the war, and they probably won't even be able to do that. I used to have a little respect for Hillary Clinton because she took a principled position on the Iraq war in 2003 and stuck to it, unlike her peers who simply jumped into the mud en masse to grovel after the latest poll results. But now she's down in the mud with the rest of them. Is there anyone who really likes this bunch? It's hard for me to believe.

John Edwards on Meet the Press very harshly blamed the incompetence of the Bush administration, but seems to have absolved them of the charge of lying about weapons of mass destruction (WMDs). He says that in 2002, when the intelligence was being discussed, he spoke with his contacts from the Clinton administration, and they all agreed that the there were WMDs in Iraq.

Here's another quote, from Senator Dianne Feinstein on CNN: "[The Iraqi government] refuses to do what's necessary to stem the tide of this civil war. Therefore the American presence becomes a buffer in the middle of Shia against Shia, Shia against Sunni, al-Qaeda foreign fighters, and a huge conflagration that's building."

No, Senator Feinstein, there's no huge conflagration building.

I wrote down another quote: "This place could go chaotic, no matter what you do." But I must have forgotten to write down who said it. Tsk. I'll have to be more careful in the future, but what's the difference? Any of them might have said it.

Conservative pundit Bill Kristol, speaking on the Fox News show, described the Democrats' behavior as "desperate." I have to agree, since that's exactly what I was thinking.

I've come to recognize what's going on, as more examples pile up.

Do you remember, dear reader, what I wrote about on December 7. I described it as possibly the most bizarre day even Washington had ever seen.

You had Jim Baker, head of the Iraq Study Group, holding up his index finger and saying, "Flip Syria! Flip Syria! Flip Syria!"

You had Bob Gates being confirmed as the new Secretary of Defense, saying, "We're not winning the war, we're not losing the war, but the present policy isn't working." Do you remember what Senator Ted Kennedy said to that remark? He congratulated Bob Gates for the "great atmospherics."

And we had journalist David Gergen say this on CNN: "This is the best moment we've had in over three years."

Yes, people were giddy, giggling, jivin', hangin' loose, and everyone was happy.

But oh, they aren't happy any more. They're a bunch of manic-depressives who were in a manic state two months ago, but are now in a depressive stage. Can't they just take a pill? Instead, they're just yelling. "George Bush is an idiot." "End the war now." "George Bush sucks."

In fact, we really saw this a couple of weeks ago, after George Bush's "library" speech, when NBC "journalist" Chris Matthews melted down on MSNBC, and ranted and raved about the stupidity of George Bush for half an hour, when it was perfectly clear that Matthews had no idea what he was talking about.

I've seen this same kind of behavior in friends, as well, both online and analog. There's a kind of desperate fanaticism, as they panic and almost become crazy. It happened last week to the entire city of Boston, as people exploded over the cartoon hoax.

Well, that's not quite right, is it. It was the college-age fans of the cartoon show who were laughing and ridiculing the Boomers, and it was the Boomers who were furious. Same with all the other examples -- it's always the Boomers who are bickering and yelling at each other, and it's the same Boomers who are now melting down, as their anxiety turns to panic and fury and fanaticism.

Washington is in a very dangerous place right now. It's filled with Boomers who think they know everything but are very ignorant, who think they know what's right but are having their core beliefs challenged at every turn, who think they're good at politics, but are ready to strike out in fury at anyone who challenges them.

And, as I've pointed out before, it's not just America. Pretty much every country that fought in World War II is in a similar state of anxiety, panic and fury. Something that we don't like may very well be happening soon. (5-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

"Palestinians don't deserve a state"

Even the most optimistic Palestinians are despairing that their dream is slipping away.

Generational Dynamics tells us that what politicians think matters little; what's really important is what large masses of people think. In particular, major shifts in opinion often signal important generational changes.

That's why I really homed into an article in Sunday's Jerusalem Post saying that the burgeoning street fights between Hamas and Fatah, especially in Gaza, is causing the international community to turn against the Palestinians, and even that the Palestinians no longer even deserve to have a Palestinian state side-by-side with Israel.

Here are some excerpts from the article:

"Everyone here is disgusted by what's happening in the Gaza Strip," said Shireen Atiyeh, a 30-year-old mother of three working in one of the Palestinian Authority ministries. "We are telling the world that we don't deserve a state because we are murdering each other and destroying our universities, colleges, mosques and hospitals. Today I'm ashamed to say that I'm a Palestinian." ...

Hafez Barghouti, editor of the PA-funded daily Al-Hayat Al-Jadeeda, said he was concerned that the fighting would tarnish the image of the Palestinians. "Tens of millions of people now look at us as worthless gangsters with no values," he complained. ...

Columnist Mahmoud Habbash also acknowledged that the fighting had caused grave damage to the Palestinians on the international arena. The internal fighting, he said, has distorted the image of the Palestinians in the eyes of the world. "The world is watching how the Palestinians are destroying their institutions and achievements with their own hands. They see how we are mercilessly slaughtering innocent people. We are losing the sympathy of the world. I'm afraid the world will now view us differently."

Reflecting the gloomy mood on the Palestinian street, political analyst Ikrimah Thabet said: "There is no reason for optimism. This is a real conflict stemming from two contradictory programs and political and ideological discord. The divisions are so deep that no temporary cease-fire will help. The bloody events have caused enormous damage to the reputation of the Palestinians, especially in light of the filthy and painful violence that has claimed the lives of children, activists, leaders and innocent civilians."

It's too early to tell whether this new attitude is temporary, or if it reflects a new and continuing reality.

At the very least it can be said that the increasing street fighting is giving support to those in the international community who claim that all Palestinians are terrorists and we shouldn't be supporting them at all.

It also gives support to those within the Palestinian community who claim that there's no point in negotiating with Israel or the west, since no compromise that supports Israel will ever receive enough popular support among the Palestinians.

By giving support to both of these groups, support is taken away from groups that want less violence. Thus, these new feelings of hopelessness could easily metastasize into an increased acceptance of violence.

Incidentally, you may have missed this on Saturday, but Hamas and Fatah signed another peace treaty, and this one had seven items in it. Unfortunately, it didn't make big news because it was the second ceasefire within 24 hours, the previous one having lasted less than an hour.

The Mideast has been deteriorating constantly since Yasser Arafat's death, as predicted in May, 2003, based on the generational changes that would occur with the disappearance of Arafat. The civil war among the Palestinians does not appear to be very far off, and a major new war between Arabs and Jews cannot be avoided. (4-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

South Korea to deploy deadly robots on border with North Korea

This is the scariest video you've ever seen.

Samsung's Techwin division will shortly begin selling heavily armed robot sentries that can identify and shoot a target automatically from over two miles away. They will cost $200,000 per unit, and the company expects to sell 1,000 in the first year.

Unlike human guards who can succumb to fatigue or inclement weather, the automated system will guarantee "perfect guarding operation." The robot has two cameras, one for daytime and infrared for nighttime, along with a laser rangefinder.

The robot uses pattern-recognition technology to sort out fleshy targets from nonhuman objects. It can be programmed to recognize words of surrender from someone who doesn't want to be shot. (Hopefully, he won't accidentally cough or something.) It can be programmed to shoot automatically, or to wait for a wireless command from a remote operator.

Here's the promotional video for the product. You've gotta see this:

This is the first of what is bound to be a flood of these robots appearing on battlefields, and eventually on city street corners and even as private guards in people's homes. Every country in the world will be developing and deploying them, and we can be certain that China already has many ongoing projects.

American armed forces are already using remote controlled robots to disarm IEDs (improvised explosive devices) used in roadside bombs in Iraq.

However, the really big project is the "Future Combat System" which calls for autonomous robot soldiers by 2014.

The Army completed the first live-fire exercise earlier this week at Fort Bliss, Texas.

A platoon of 36 Soldiers tested such FCS technology as Urban and Tactical Unattended Ground Sensors and unmanned vehicles designed to clear roads and buildings, as well as detect persons and objects that may enter a building occupied by soldiers. Robotics and unmanned vehicles help clear buildings without sending actual soldiers inside. This is part of the most comprehensive Army modernization effort in more than half a century.

You're not gonna believe this, but if the above video wasn't enough excitement for you, then you can download a free PC game called F2C2 (Future Force Company Commander): "Welcome to the battlefield of the future! F2C2 was created by Science Applications International Corporation (SAIC) to help explain the Future Combat Systems (FCS) program to soldiers in an interactive environment. The game depicts the 18 FCS systems, all connected via the FCS System of Systems Common Operating Environment, supporting the 21st century soldier. Although F2C2 is best experienced when the player has a working knowledge of Army concepts and terminology, anyone can play! F2C2 may seem hard at first if you haven’t had Army training, but there are tutorials available. Prepare to be challenged!"

From the point of view of Generational Dynamics, this is one more step in the develop of super-intelligent computers that will, within ten years or so, be more intelligent than human beings. These robots will serve not only as soldiers, but also in a variety of tasks from being a plumber to being a 24 hour a day nurse. In the late 2020s, super-intelligent robots will reach the point, known as The Singularity, where they're able to do the necessary research and development to develop new versions of themselves. After that they will quickly become far more intelligent than humans, and the future existence of the human race cannot be predicted. (3-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Robert Gates on "civil war" in Iraq.

Following the release of the Iraq National Intelligence Estimate on Friday, Secretary of Defense Robert Gates and and Chairman Of Joint Chiefs Of Staffs Gen. Peter Pace held a joint press conference at Pentagon.

Secretary of Defense Robert Gates <font face=Arial size=-2>(Source: CNN)</font>
Secretary of Defense Robert Gates (Source: CNN)

He was asked whether he felt the war in Iraq was a "civil war":

"When I think of a civil war, I think of thousands of people out on the streets killing each other. What I see in Iraq and the sectarian conflict are gangs of killers going after specific neighborhoods, going after specific targets, either individuals or other groups, or terror attacks in marketplaces to inflict casualties. This isn't a divided army, or a divided government in the sense that I ever thought of as a civil war."

This is a pretty good, concise definition, probably better than I've come up with. It makes it as clear as possible, in just a few words, how unlike a civil war the Iraq war is.

You'd think that the "anti-war" Boomer crowd in Washington would be happy about this. After all, then they can claim that it's all right to pull out of Iraq and it won't cause a bloodbath. But they've turned into such fanatics that reason doesn't matter much, even when it helps their own cause.

At any rate, after the departure of Donald Rumsfeld, it's a great relief to me to know that our new Secretary of Defense isn't listening to the idiots in Washington. (2-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

The U.S. vs Iran debate may be unifying the Iraqis

Iraqis don't want interference from either America or Iran.

Recent terrorist acts against Americans in Iraq have given rise to a debate about Iran's activities in Iraq. The debate has both an American and Iraqi point of view.

I'd like to quote from two interviews that focus on this issue from Iraq's point of view.

The first, which appeared on MSNBC on Wednesday morning, was with Brad McGuinn, a professor at University of Miami:

Q: Is Iran's efforts to spend money on things like hospitals and humanitarian assistance in the end as big an influence to the U.S. in the region as its military efforts?

A: Iran has gravity on its side -- it's there. It also has very deep and lasting relationships with the Shia populations of Iraq and of Lebanon, and to a large extent this is a reflection of their missionary work -- health care, education -- and it reflects a general trend in Iranian policy to deepen its influence in the broader Middle East. So yes, between the United States and Iran there is a competition, a confrontation really, for the hearts and minds of the Shia of the Middle East.

Q: Is Iran succeeding in building support among the Iraqi people?

A: It is with a component of the Iraqi people. Iran had a [kind of] traumatic moment that confronted it when the United States came into Iraq because of the transformation of Iraq into a Shia-dominated state that would be perhaps friendly to the United States was for Iran a major threat, because for the first time there would be another Shia state that would be able to challenge Iran for seniority within that Shia community. So from Iran's perspective, yes, it is a "playing for keeps" proposition.

Q: Do you think there's a point where the Shia in Iraq think that Iran is a better ally than the U.S.?

A: No, I don't they will, because between the Iraqi Shia and Iran there exist many points of convergence, but fundamental points of divergence. There is, at the end of the day, something of Arab-ness, something of Iraqi-ness, that separates the Shia of Iraq from Iran.

Which is not to say that in the security vacuum, in the economic catastrophe that exists, there in Iraq as well as in Lebanon, that Iran does not have a fertile field. But at the end of the day, the Shia of Iraq are Iraqis.

Q: What does Iran want?

A: Influence. And it wants to be sure, as well, that the Shia of Iraq do not come to reflect a pro-Western tendency. They don't want to see the United States gaining an influence with the Shia community there, and then therefore be able to use this Shia alliance as a wedge in the broader Middle East in terms of the sectarian dynamic between the Sunni and the Shia. It's a battle, really, for that population, between the United States and Iran.

I'd like to call your attention especially to this sentence in the second answer: "There is, at the end of the day, something of Arab-ness, something of Iraqi-ness, that separates the Shia of Iraq from Iran."

This captures a concept that I was trying, not very successfully, to convey in article last August on Washington hysteria over an Iraqi civil war: That when the chips are down, Iraqis put Iraqi nationalism above religious differences.

I quoted the Library of Congress (LOC) history of Iraq as saying the following, talking about the Great Iraqi Revolution of 1920:

"Ath Thawra al Iraqiyya al Kubra, or The Great Iraqi Revolution (as the 1920 rebellion is called), was a watershed event in contemporary Iraqi history. For the first time, Sunnis and Shias, tribes and cities, were brought together in a common effort. In the opinion of Hanna Batatu, author of a seminal work on Iraq, the building of a nation-state in Iraq depended upon two major factors: the integration of Shias and Sunnis into the new body politic and the successful resolution of the age-old conflicts between the tribes and the riverine cities and among the tribes themselves over the food-producing flatlands of the Tigris and the Euphrates. The 1920 rebellion brought these groups together, if only briefly; this constituted an important first step in the long and arduous process of forging a nation-state out of Iraq's conflict-ridden social structure.

The 1920 revolt had been very costly to the British in both manpower and money."

I quoted further passages to show that once this crisis war ended, Iraq became a chaotic independent nation:

"On October 13, 1932, Iraq became a sovereign state, and it was admitted to the League of Nations. Iraq still was beset by a complex web of social, economic, ethnic, religious, and ideological conflicts, all of which retarded the process of state formation. The declaration of statehood and the imposition of fixed boundaries triggered an intense competition for power in the new entity. Sunnis and Shias, cities and tribes, shaykhs and tribesmen, Assyrians and Kurds, pan-Arabists and Iraqi nationalists--all fought vigorously for places in the emerging state structure. Ultimately, lacking legitimacy and unable to establish deep roots, the British-imposed political system was overwhelmed by these conflicting demands. ...

The arbitrary borders that divided Iraq and the other Arab lands of the old Ottoman Empire caused severe economic dislocations, frequent border disputes, and a debilitating ideological conflict.

The point I was trying to make at that time was that Iraq is a chaotic country when they're left by themselves, but Iraqis stick together as Iraqis when outsiders are interfering.

Now I'll quote another interview from Wednesday, this time with Iraqi's Prime Minister Nuri al-Maliki, on CNN International:

Q: What is the nature of Iranian interference in Iraq today?

A: All the regional countries want to interfere in Iraq - Iran, Turkey, Arabic countries like Jordan and Saudi, and each one of them has his own reason to interfere in Iraq. Some of them come from the position of facing America in iraq. For some of them, it's about the sectarian confrontation in iraq, and for others from the position of political confrontation in Iraq. Interference exists in Iraq, and we have talked about it frankly and clearly, whether it was by trafficking weapons, or supporting specific sides. And when our delegations go to those countries, the message is, "Stop your interference in Iraq." Because we will not allow you, no matter how good our relations are. For example, Iran is Shiite, and we are Shiite, and we have many Shiites in Iraq. But this does not justify Iran interfering in Iraq. We respect this relationship and we will not allow this interference to exist. Also, Iraq is an Arab country, the majority are Arabs. But this also will not justify for Arab countries to interfere in Iraq.

Q: Is American intelligence wrong when it says Iran is working to kill American soldiers in your country?

A: I didn't say that it does not exist, and the Americans, when they say what their intelligence is saying that Iranians are killing their soldiers - it means that their intelligence is based on information that they got. And this is not an obscure thing - there is a struggle between Iran and America. And we have told the Americans and the Iranians - we know that you have a problem with each other, but we're asking you, please, solve your problems outside of Iraq. We do not want the American forces to take Iraq as a field to attack Iran or Syria, and we will not accept Iran to use Iraq to attack the American forces. But does this [Iranians killing American soldiers] exist? It exists. And I assure you that it exists. But it's based on the struggle between the two countries. And from our side, we're trying to stop the effort to have a struggle in Iraq. We're always encouraging the two sides to negotiate, and to try to find an agreement away from Iraq. Iran and America: We're ready to pay efforts to solve the problems between them if it's possible, but not on the account of Iraq. Iraq has nothing to do with the American-Iranian struggle. And we will not let Iran play a role against the American army, and we will not allow America to play a role against the Iranian army. And everyone should respect the sovereignty of Iraq.

One thing that Malikis words do is throw cold water on a bit of nonsense we keep hearing from Washington journalists, pundits and "experts" is that "the division between Sunnis and Shia is 1400 years old [dates from the 660s AD], and nothing we can do today will change that." Well, we could also say that "the division between Western and Orthodox Christians is 2000 years old, and nothing will change that," or "the division between Catholics and Protestants is 600 years old, and nothing will change that" or "the division between Christians and Jews is 2000 years old, and nothing will change that."

There's an amusing aspect to all of this. A lot of Washingtonians were extremely embarassed by all the publicity that they're ignorant of even the most basic aspects of the Mideast, unable to answer such questions as "What's the difference between Sunni and Shia?" and "Is al-Qaeda Sunni or Shia?" As a result, there's been a spate of articles and TV news segments presenting some of the major sound bites. Now let's hope that nobody asks them the difference between Persian and Arab.

Unfortunately, these journalists, pundits and "experts" seem to have settled on only one sound byte: that Sunnis and Shia have been fighting for 1400 years, and therefore the Iraqi "civil war" will proceed into a bloodbath, unless we do X (where "X" depends on the speaker's political or ideological position).

Now, it's true that there are Sunni vs Shia wars, just as there are Orthodox vs Western Christianity wars, and Catholic vs Protestant wars, and Jew versus Christian wars. But things don't stop there. Groups of people align themselves into identity groups in different ways, and it's not always the simple way that Washingtonians describe in a sound byte.

As I said above, Iraq's history since the 1920 Iraqi Rebellion quite clearly shows that Iraqis have put nationalism ahead of religious differences when it comes to war. That's not to say that there is no Sunni vs Shia violence -- obviously, there's a great deal of it today -- but in view of Iraq's history there's no reason to believe that Iraqi nationalism won't reassert itself as it has before.

Thus, if we examine Prime Minister Maliki's statement in that way, what we see is a trend in that direction, the direction of reasserting Iraqi nationalism. He's not denying that Iranians have been killing Americans on Iraqi soil, but he's taking a "plague on both your houses view": He doesn't want either country committing violence on Iraqi soil.

This is also consistent with what we've been saying for years -- Iraq is in a generational "Awakening" era, and all countries in these eras have the same characteristics: Extremely chaotic political battles, but a very strong aversion to war (unlike countries in generational "Crisis" eras, where the population is drawn to war). Maliki is saying that if America and Iraq are going to have military confrontations, then "please, solve your problems outside of Iraq." It would be interesting to know what place Maliki has in mind, but at any rate he means not in Iraq.

I'll give this one thing to the "Iraq is in civil war" crowd: I'm not saying that there could NEVER be a bloodbath civil war between Sunnis and Shia in Iraq; I'm only saying that it can't happen NOW. What has happened throughout history is that new ideas are born during generational Awakening eras, and then implemented during generational Crisis eras. It's possible that what we're seeing now presages a Sunni vs Shia civil war decades from now. But definitely not before then.

However, that's not the scenario that I expect and, in fact, I have absolutely no reason to change my August 19, 2003, analysis and predictions about Iraq, when I said that there would be no major uprising or civil war in Iraq unless it became a "theatre of war by outside forces." That's what both al-Qaeda and Iran have been attempting, as they fight a proxy war in Iraq, but Maliki wants no part of it.

The events happening today that are most relevant to the Iraqi situation are not taking place in Iraq. The most relevant events are in the Gaza Strip, where Fatah and Hamas are substantially escalating the level of war every day, and a major civil war seems very close.

Such a war would draw in Egypt, Israel, Jordan, Iran, and the entire Mideast, and some of that war would take place on Iraqi soil whether Maliki likes it or not. (2-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Boston cartoon bomb hoax exposes Boomers to more ridicule

In a media event reminiscent of Orson Welles' 1938 "War of the Worlds" radio show, blinking neon signs representing characters in the Cartoon Network show Aqua-Teen Hunger Force were placed on Boston highways and bridges, where they were mistaken for bombs. The cartoon show characters include a talking milkshake, a box of fries and a meatball.

The characters from the Cartoon Network show <i>Aqua-Teen Hunger Force</i>
The characters from the Cartoon Network show Aqua-Teen Hunger Force

The neon signs have been place in nine cities around the country over the past several weeks, but in Boston the signs suddenly sent a wave of panic across the city, bringing out bomb squads, and causing highways and bridges to be shut down.

One of the neon signs, depicting the ATHF cartoon character Mooninite giving the public the finger. <font face=Arial size=-2>(Source: Fox News)</font>
One of the neon signs, depicting the ATHF cartoon character Mooninite giving the public the finger. (Source: Fox News)

The hoax was revealed when the Cartoon Network called to admit it. Spokeswoman Shirley Powell said that the devices had been up for two weeks without incident. "We were simply promoting a TV show," she said. "If we had ever perceived this to be something threatening safety, we would never have proceeded with it."

In fact, the young men, aged 18-24, in the target audience of the marketing gambit seem to think the whole thing is a joke, and some ridiculed Boomers for falling for it.

Popular Boston Herald columnist Howie Carr quoted one young person as saying, "Anyone under the age of 35 knew this was a joke the minute they saw it."

Tobe Berkowitz, an advertising professor at Boston University, said that it's easy to understand why there is a generational gap. "For people who are hip and live in the world of blogs and all sorts of cool alternative media, it's one thing," he said. "But for the rest of us ... they don't get it as a marketing or a clever event, they see it as a huge disruption of their lives."

The Boston Globe found that the marketing ploy "exposed a wide generation gap" among the citizens of Boston.

One 22-year-old design student said he first saw them two weeks ago. "I knew it was art, and I knew it was part of the [cartoon show] ads, because I saw a billboard for the same thing. I see it in New York all the time."

A local 29-year-old blogger wrote sarcastically, "Repeat after me, authorities. L-E-D. Not I-E-D. Get it?" (An LED is a "light emitting diode," commonly used in digital clocks; an IED is an "improvised explosive device" of a kind used in roadside bombs by Iraqi terrorists.)

So those of us in the Boomer generation just have to suffer more ridicule and abuse, I guess.

But from the point of view of Generational Dynamics, this illustrates the tension and anxiety present in a generational Crisis era. If these devices had been planted ten years ago, no one would have cared, and any hint that they were bombs would have been treated as ridiculous.

The reaction to the blinking signs is an example of mass hysteria, and the best example of that is Orson Welles' 1938 radio adaptation of H. G. Wells' story, War of the Worlds.

Today's America is like 1938 America in many ways. In both cases it's a generational Crisis era. Today American's are anxious about terrorism and the economy.

Americans were also very anxious in 1938, as they were still in the depths of the Great Depression. Radios were selling at a record pace, as Hitler was rallying his forces in Europe, having already taken control of the Sudetenland area in Czechoslovakia. On the other side of the world, the Japanese had invaded China and were in the process of taking over. Many Americans were extremely anxious about war.

In this atmosphere, the radio program appeared to be a music program interrupted by news bulletins reporting on an invasion of Martians in cities around the country. Although announcements during the program informed listeners that it was fiction, tens or hundreds of thousands of listeners panicked, believing that a real invasion was taking place. A substantial minority believed that it was a German invasion rather than a Martian invasion.

This is a good example of mass hysteria, because it illustrates how large masses of people can react irrationally to threats of war during crisis periods. If that much panic occurred among a relatively few listeners to a radio program describing a fictional event, imagine how much greater the panic would have been if the story had been about a REAL German or Japanese invasion.

Mass hysteria can occur in other than generational Crisis eras. The well-known 1692 Salem witchcraft trials occurred during a generational Awakening period, when four teenage girls appeared to have epileptic fits, and accused several neighbors of witchcraft. By the time it was all over, dozens of people had been jailed and 20 had died.

You can also see mass hysteria in something as ordinary as rock concerts, for Frank Sinatra in the 1940s or the Beatles in the 1960s, where young girls are the main actors screaming at every word.

Young girls and women, especially when grouped in schools or social circles, are highly susceptible to mass hysteria. Men are much less susceptible because they're much less social, but they do become "infected" by the women in their lives, or by unambiguous violence or threats of violence.

So mass hysteria can occur at any time, during any generational era. But it's especially important during generational Crisis eras because it can lead to war.

Last summer's Lebanon war between Israel and Hizbollah was a tragedy for all involved, but it's provided a wealth of insight and information for Generational Dynamics. In this case, the Hizbollah missiles coming from Lebanon caused a nationwide panic among the Israelis that led them to go to war within four hours with no clear plan or objective. In the end, the war was a disaster.

There are people who believe that Americans have somehow "recovered" from 9/11, and that we're no longer anxious and concerned about terrorism. Nothing could be farther from the truth.

In fact, the opposite is happening, as more and more WW II survivors disappear, leaving the world to be run by Boomers who have no skills at doing anything but arguing. Americans panicked at Orson Welles' War of the Worlds in 1938, and Bostonians panicked at neon cartoons on Wednesday.

Now imagine how Americans will react if there are REAL terrorist bombs involved. Don't think that Americans won't panic in an instant; it happened this week in Boston, and in Israel last summer. It can happen again at any time, and it can lead to war.

And it can happen to any of the countries that fought in World War II, since all of these countries are now in generational Crisis eras. That's how crisis wars get started. (2-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Fatah storms Hamas stronghold in Gaza

Palestinian President Mahmoud Abbas appears to be carrying out his ultimatum to Hamas, issued several days ago, to accept previous agreements or face war. According to a report by Debka at that time, Abbas's Fatah security force is willing to sustain 200 to 500 dead to win total control of Gaza.

In a shock to Hamas' leadership, Fatah's forces stormed the Islamic University campus in Gaza, a bastion of the Hamas movement. Earlier on Thursday, six people died when Hamas militants hijacked a convoy delivering supplies to the Fatah-allied security forces. All in all, six people died and 70 people were injured on Thursday in Fatah-Hamas fighting.

In an event of possibly even broader significance, Ynet reports that Fatah captured seven Iranian citizens during the raid, and another Iranian committed suicide. The issue of Iranian intervention in Iraq, Lebanon, Syria and Gaza is continually raising the stakes in an increasingly hostile relationship between the U.S. and Iran.

A last-ditch peace agreement earlier this week led to three days of relative peace between Fatah and Gaza. This was the latest in a series of peace agreements that failed almost as soon as they were sign. It seems unlikely that there's anyone left who serious believes that any further peace agreement will prevent a Palestinian civil war for long. (1-Feb-07) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Boys, boys, boys! China is running out of girls.

A look inside a Chinese maternity ward is the subject on a report on CNN International on Wednesday.

Chinese maternity ward:  Five boys (white) and three girls (pink) <font face=Arial size=-2>(Source: CNN)</font>
Chinese maternity ward: Five boys (white) and three girls (pink) (Source: CNN)

There are 118 boys born for every 100 girls in China.

The reason: Because of China's "One-child policy," women opt for sex-selective abortion and infanticide because they prefer having a boy to a girl.

The imbalance is even greater in the countryside: In rural areas, the ratio is 130 boys for every 100 girls. The situation is more critical in rural areas, since couples need a son to care for them in their old age, according to Chinese cultural customs.

Under normal circumstances, humans will give birth to 105 boys for every 100 girls. There are naturally more boys to compensate for the fact that males are more likely to get killed in wars. So a ratio of 130 boys to 100 girls cannot be an accident.

There's already a huge gender imbalance in China, and it keeps growing. The one-child policy was established in 1980 to keep the population of China from growing even larger, but families have used abortion and infanticide to guarantee, when possible, that the one child is a son who can support them later. China has been trying for years to enforce policies that would produce more girls, but these policies, which include making ultrasound illegal, have obviously not been working very well. (Last sentence added on 4-Mar)

From the point of view of Generational Dynamics, 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. The surplus of unattached males only exacerbates the social breakdown, increasing the incidence of prostitution and leaving the males little incentive to "settling down," as opposed to joining violent gangs or going to war.

Today, there are over 100 million migrant workers (15-20% of the entire workforce), mostly peasants who have lost their farms to corrupt land deals by CCP officials, who take any jobs they can find in the cities and send money back to their families in vast poverty-stricken rural areas. Exactly what event will trigger the civil war cannot be predicted, but it could happen next week, next year or after, but will probably happen sooner rather than later. (1-Feb-07) 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.