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


Web Log - June, 2007


Britain simultaneously pummeled by terrorist bomb attacks and nationwide floods

England and Scotland are facing multiple threats this weekend.

Gordon Brown has been Prime Minister for just two days, and is now faced with multiple threats before even getting a chance to catch his breath:

The news is still sketchy, but apparently it was pure luck that caused the two car bombs to be discovered before being detonated, as a suspicious bystander notified the police. If the car bombs had exploded in the crowded

Al-Qaeda is suspected as the perpetrator, but that's still under investigation. Also, it's not known yet whether the Saturday incident is related to the Friday incident, or whether it was some kind of independent copycat crime. There is a Scottish connection to all three car events, and Gordon Brown is a Scot, and so a Scottish angle is being considered.

Still, Britain is on nationwide alert, fearing that other explosions may be planned.

Furthermore, with the July 4th holiday coming in the US, New York City has also gone on high alert, although there have been no credible threats. The US is not raising its terror alert status, but officials are advising the public to be vigilant. (30-Jun-07) Permanent Link
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Bloomberg news accuses S&P, Moody's and Fitch of purposely "masking losses"

This is "the pot calling the kettle black," as my mother used to say of people who blame other people for things they've done themselves.

It's highly deviant for a news organization to make blunt accusations of anyone but out-of-favor politicians, but that's what happened Friday in an article written by Mark Pittman.

The accusatory article refers to the ratings on the credit derivatives (CDOs) that we've been discussing, following last week's Bear Stearns debacle.

Bear Stearns and other financial managers had been able to greatly overvalue their hedge fund products, based on the inflated valuations of credit derivatives. The valuations are based on investments ratings provided by the three major financial ratings services that investors depend on. Bloomberg is blaming them for keeping the ratings artificially high, "masking burgeoning losses" being experienced by the hedge funds themselves, and also by the individuals who have invested in them.

According to the article:

"Standard & Poor's, Moody's Investors Service and Fitch Ratings are masking burgeoning losses in the market for subprime mortgage bonds by failing to cut the credit ratings on about $200 billion of securities backed by home loans.

The highest default rates on home loans in a decade have reduced prices of some bonds backed by mortgages to people with poor or limited credit by more than 50 cents on the dollar and forced New York-based Bear Stearns Cos. to offer $3.2 billion to bail out a money-losing hedge fund. Almost 65 percent of the bonds in indexes that track subprime mortgage debt don't meet the ratings criteria in place when they were sold, according to data compiled by Bloomberg.

That may just be the beginning. Downgrades by S&P, Moody's and Fitch would force hundreds of investors to sell holdings, roiling the $800 billion market for securities backed by subprime mortgages and $1 trillion of collateralized debt obligations, the fastest growing part of the financial markets.

"You'll see massive losses from banks, insurance companies and pension managers," said Joshua Rosner, a managing director at investment research firm Graham Fisher & Co. in New York and co-author of a study last month that said S&P, Moody's and Fitch understate the risks of subprime mortgage bonds. "The longer they wait, the worse it's going to be."

Note the phrase "according to data compiled by Bloomberg."

The lengthy article summarizes a great deal of this data, showing why the rating services should have lowered the ratings of CDOs long ago. The article specifically claims that "S&P abandoned seven-year-old criteria for determining a bond's protection against default in February."

What we're seeing is a continuing trend: increasing demands for retribution. However, these calls for retribution come from people and organizations who are just as much to blame as the people they're blaming.

I've been pointing out for years that a stock market crash is mathematically certain, given that the market is overpriced by a factor of more than 250%, just like 1929. And yet, financial journalists, analysts, pundits and politicians -- Bloomberg among them -- have been crowing about an "underpriced" market for years.

I'm not the only one who's talked about an overpriced market.

Here's what Alan Greenspan said late in 2005, just as he was finishing up his term as Fed chairman:

"To some extent, those higher [stock and housing] values may be reflecting the increased flexibility and resilience of our economy. But what [investors] perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums."

What Greenspan is talking about here is exactly what's happening today. We have an "onset of increased investor caution" that "lowers asset values and promotes the liquidation of debt."

That's what happened last week with Bear Stearns, and it's what's going to happen in the form of "massive losses from banks, insurance companies and pension managers." The processs that Greenspan described in 2005 is EXACTLY what's happening today.

And Greenspan concluded, "This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums."

So take your pick. My web site warned the world, but if you don't like that, then Greenspan also warned the world. You have your choice of the unknown guy and the most well-known financial guy in the world, both saying much the same thing, in different words.

So where was Bloomberg's warning in 2005? Where was Bloomberg's article claiming that S&P, Moody's and Fitch were rating stocks too high, saying that the price/earnings ratio of these stocks had been astronomically high for over ten years? Where was the article pointing out that, by the Law of Mean Reversion, the stock market HAD to have a major readjustment over a period of many years?

Bloomberg has hardly been alone in being a cheerleader for larger and larger bubbles. Greg Ip of the Wall Street Journal and Steve Liesman of CNBC are people I've commented on in the past, but obviously the mainstream media have been full of financial reporters saying stupid things.

And of course the biggest cheerleader of them all has been the new Fed chairman, Ben Bernanke, who doesn't even believe that bubbles exist.

But we don't have to go that far back.

Let's go back to the phrase "according to data compiled by Bloomberg" from the article quoted above.

The data that Bloomberg compiled is hardly new. I quoted much of that data in a series of articles that I wrote in February on the rapid collapse of ABX index, which indexes the value of the mortgage-based CDOs that are currently in question.

Bloomberg is criticizing S&P, Moody's and Fitch for not lowering the ratings of those CDOs at that time, but why didn't Bloomberg write its accusatory article in February? Why didn't Bloomberg write this in February: "S&P is abandoning its seven-year-old criteria for determining a bond's protection against default." Why wait until today, when the horse, as they say, is already out of the barn?

Jack Bouroudijian of Brewer Investment Group gushes over stock market <font face=Arial size=-2>(Source: CNBC)</font>
Jack Bouroudijian of Brewer Investment Group gushes over stock market (Source: CNBC)

In an article I wrote in December, entitled "Financial analysts gush at stock market's meteoric rise," I quoted what Jack Bouroudijian of the Brewer Investment Group said on on CNBC:

"This has been a wonderful six months for the market. And the worst thing about it is that we underperformed the rest of the world. So it's really of question of whether we're at the beginning of a multi-year run in equities. I guess that's the big debate. When you've got these superstar fund managers like the Bill Millers of the world, that are underperforming that are still unbelievers out there, that makes me even more bullish than I am. And we see all this data coming out and this is absolutely everything that you want."

Randall Dodd, director of the Financial Policy Forum <font face=Arial size=-2>(Source: CNBC)</font>
Randall Dodd, director of the Financial Policy Forum (Source: CNBC)

In that same article, I also quoted Randall Dodd, director of The Financial Policy Forum, who gave a much more sober assessment of the marketplace:

"I don't want to be alarming, I'm just trying to raise people awareness about these issues. I would look at the credit derivatives market. We've had some problems in clearing and settlement of those contracts. We've had problems with people trading more credit derivatives than there is underlying debt. And right now there's one big issue we have to look at -- it's that a lot of our major banks and broker dealers are moving their credit risk off their books and into hedge funds. So you have financial institutions with capital requirements reducing the amount of capital they use by moving that credit risk into hedge funds which have no capital requirements and often use very high leverage to manage their credit risk of selling credit protection through this credit derivatives market."

Now tell me, dear reader, which of these two people would you trust in the future? If you're an investor, would you trust your money to Jack Bouroudijian of Brewer Investment Group? I wouldn't, but what do I know?

So it's nice that Bloomberg has suddenly "got religion," but Bloomberg has no one to blame but itself. Bloomberg is just as guilty as S&P, Moody's and Fitch.

But it does show that the trend of retribution is surging. More and more people are panicking and looking for someone to blame, and since so many people and institutions are to blame, it's not not hard to find someone.

Meanwhile, panicking investors are also becoming increasingly risk-averse, less willing to take risks, as we discussed in conjunction with the announcement of multiple SEC investigations on credit derivatives. This risk-aversion is decreasing the demand for investment opportunities and, by the law of supply and demand, reducing the value of investment opportunities. This "lowers asset values and promotes the liquidation of the debt that supported higher asset prices," as Greenspan predicted in 2005.

From the point of view of Generational Dynamics, this is exactly what always happens at the time of a generational panic and stock market crash.

The preceding bubble period is made possible by giggling, giddy, gushing investors, journalists, and politicians who believe that the Laws of the Universe have suddenly changed, and that this bubble "is different," and that everyone should pour money into the bubble, making it bigger.

At some point these giggling, giddy, gushing gushing investors, journalists, and politicians suddenly fear that everything is collapsing around them, and that they're going to be bankrupt and homeless. That's when they panic. And in the case of a generational panic, it's something that they've never seen before, and they overreact, resulting in a level of panic that brings about a new 1930s style Great Depression. That's the process that's unfolding now. (30-Jun-07) Permanent Link
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Market for credit derivatives may be collapsing

The SEC is opening multiple investigations into the abuse of CDO investments, following last week's Bear Stearns debacle, with the result that investors are being scared away from new CDO investments.

The investment landscape has changed dramatically in the last few days. You'll recall that I discussed how Bear and many other financial institutions have their assets in these credit derivatives known as collateralized debt obligations, or "CDOs." The collateral for these debt obligations has been the mortgage payments owed by individual homeowners or investors, but as the number of foreclosures has been increasing, the intrinsic value of the CDOs has fallen.

Thus, as I discussed, these CDOs have a presumed market value that the banks and hedge fund companies are claiming, but if anyone actually tries to sell them, they may get only 50 cents on the dollar, or less. This downward trend is expected to continue, as the real estate market crisis continues to spread. This means that the value of assets claimed by many of today's hedge funds far exceed their real market value.

The Bear Stearns debacle ended in a major cover-up of the credit derivative world. A major motivation for everyone baling out the hedge fund was to avoid a fire sale of all the hedge fund assets, including the CDOs. Such a fire sale would have established a market price for CDOs and would, by the "mark to market" regulations, require ALL hedge funds in ALL financial institutions to revalue their assets according to the fire sale prices, resulting in a domino effect of hedge fund failures.

According to a report from JP Morgan, the market for new CDOs is collapsing. A month ago, $20 billion in new CDO investments were offered to investors; today it's only $3 billion, and the terms are far less attractive.

That's only part of the retribution that high-flying deal makers are beginning to feel.

A front-page article in Wednesday's Wall Street Journal is entitled "How Wall Street Stoked The Mortgage Meltdown." It specifically blames Wall Street firms, naming Lehman Brothers Holdings Inc. as the worst of the offenders, of adopting the policies that have led to the proliferation of subprime mortgage loans and resulting foreclosures.

The Securities and Exchange Commission (SEC) has opened about a dozen investigations into CDOs, following the near-default of the Bear Stearns hedge funds.

How much are the CDOs overvalued? According to one analyst, referring to last week's canceled auction of the Bear Stearns hedge funds assets: "The banks were not prepared to bid over 85% of face value for CDOs rated 'A' or better. God knows how low the price would have dropped if they had kept on going. We hear buyers were lobbing bids at just 30%." He's referring to the higher quality 'A' grade CDOs -- not the low-grade 'BBB-' CDOs, where investors may be even more reticent.

He adds, "We don't know what the value of this debt is because the investment banks shut down the market in [the Bear Stearns] cover-up so that nobody would know. There is $750 billion of dubious paper out there in the form of CDOs held by banks that have a total capitalisation of $850 billion."

If you enjoy financial nerd humor, you might want to check out the new commentary by Bill Gross, head of the PIMCO bond fund, the world's largest.

He says sarcastically that "this Paris Hilton charade of a crisis, is really so much more than just a 3 or 27 day lockup in the LA County jail":

"Those that point to a crisis averted and a return to normalcy are really looking for contagion in all the wrong places. Because the problem lies not in a Bear Stearns hedge fund that can be papered over with 100 cents on the dollar marks. The flaw resides in the Summerlin suburbs of Las Vegas, Nevada, in the extended city limits of Chicago headed west towards Rockford, and yes, the naked (and empty) rows of multistoried condos in Miami, Florida. The flaw, dear readers, lies in the homes that were financed with cheap and in some cases gratuitous money in 2004, 2005, and 2006. Because while the Bear hedge funds are now primarily history, those millions and millions of homes are not. They’re not going anywhere…except for their mortgages that is. Mortgage payments are going up, up, and up…and so are delinquencies and defaults. A recent research piece by Bank of America estimates that approximately $500 billion of adjustable rate mortgages are scheduled to reset skyward in 2007 by an average of over 200 basis points [that is, 2%]. 2008 holds even more surprises with nearly $700 billion ARMS subject to reset, nearly ¾ of which are subprimes. ... If delinquencies lead to defaults and then to lower home prices, then we have problems and the potential for an extended – not a 27-day Paris Hilton sentence."

Day by day we're seeing in practice what was predicted theoretically by last year's article on "System Dynamics and Macroeconomics," and followed with an essay that I wrote on "A conundrum: How increases in 'risk aversion' lead to higher stock prices," based on work by Harvard economist named Robert J. Barro. Briefly, the people in the generations that survive the previous crash (in this case, the 1929 crash) become extremely risk-averse, and refuse credit. As those generations disappear (retire or die), the younger generations become risk-seeking, and increasingly use debt and credit abusively. The abusive use of credit actually increases the total amount of money in circulation, so that money is poured into BOTH stocks and bonds, so that they both participate in the bubble.

The abuse of credit has been trending upwards for decades now, mainly pursued by members of the Boomer generation and Generation-X, who have no personal memory of the 1930s Great Depression, and saw no need to avoid high levels of risky investments.

But now things are changing. These Boomer and Xer investors are beginning to panic because they see that risky investments in subprime mortgage loans are making people homeless, and they're seeing that this is spreading to their own high-flying investments in hedge funds.

For the first time, many of them are seeing financial disaster. It hasn't happened to them yet, but they can see it coming.

Within just the past few days, this has caused a major turnaround. Fearless investors and financial institutions are turning risk-averse in massive numbers.

Just as the abusive use of credit "created" money, pouring huge amounts of liquidity into the market place, the return to risk aversion is now pulling massive amounts of liquidity out of the marketplace.

Before closing, let's not forget China, whose entire economy has been in a long-term bubble, and whose Communist leaders are scared to death of a a stock market panic.

Recall that a sharp fall in the Shanghai stock market index triggered worldwide repercussions in February. This is possibly the most volatile stock market in the world. Here are the closing values for the Shanghai Composite index since the beginning of the month:

    Date      Index       Change
    -----     -------     -------
    6/01      4000.74     - 2.65%
    6/04      3670.40     - 8.26%
    6/05      3767.10     + 2.63%
    6/06      3776.31     + 0.24%
    6/07      3890.80     + 3.03%
    6/08      3913.13     + 0.57%
    6/11      3995.68     + 2.11%
    6/12      4072.13     + 1.91%
    6/13      4176.47     + 2.56%
    6/14      4115.20     - 1.47%
    6/15      4132.86     + 0.43%
    6/18      4253.34     + 2.92%
    6/19      4269.52     + 0.38%
    6/20      4181.32     - 2.07%
    6/21      4230.82     + 1.18%
    6/22      4091.44     - 3.29%
    6/25      3941.08     - 3.68%
    6/26      3973.37     + 0.82%
    6/27      4078.59     + 2.65%
    6/28      3914.20     - 4.03%

The index today is very close to where it was at the start of the month, but with huge variations in between.

From the point of view of Generational Dynamics, the world is overdue for a new generational stock market panic, leading to a new 1930s style Great Depression. It's possible that this panic will start on Wall Street, possibly triggered by the CDO problem. But I still think that it's also highly likely that the panic will begin in China, and spread from there to the rest of the world. (28-Jun-07) Permanent Link
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Sorry that the web site was down last night.

This was appalling customer service by Interland (, the web service provider.

I'm going to do some ranting today and express my rage about my web service provider and about online services in general.

Briefly: I've been running this web site on (formerly Interland) for over five years. Everything was fine for years until last night when Interland shut down the web site by preventing the web site (cgi) software from writing to disk (exceeding disk quota).

I discovered this on Wednesday morning and called Customer Service, and spoke to a girl called Karen. Karen said that I was using 1.1 GB, over four times as much disk storage as was allowed on the plan that was set up five years ago.

I said that I looked at their web site and saw that I was paying more for their service than their most expensive plan, and that service plan provided 5 GB of storage.

"That doesn't matter. You're on an old server, so you got cut off."

Why was I on an old server? "Because it was set up that way five years ago."

Would you please change my disk quota for today, so that my web site will be up again? And then I'll get the service plan straightened out.

"No, out of the question. You'll have to upgrade to another service."

OK, but in the meantime, could you please change my disk quota for a day, so that my web site will be up again?

"No, it's out of the question. It can't be done. And your web site isn't down. It's your fault because you have too many files."

Well that was news to me. Why has everything been OK for the last few years, and all of a sudden my web site is down today?

"Maybe it's because they decided to check today. I don't know. But it's your fault."

I've been your customer for years. (Shouting) And my web site is down now. You aren't going to do one simple thing?

"You have to upgrade to another service."

Yes, I know that. But I'm asking you to let me run my web site while for a day or two while I get that straightened out.

"That's impossible. We can't do that."

You mean (shouting) that everything was fine yesterday, and today you're screwing me and you won't do anything about it?

"Watch your language."

(Shouting) You have a hell of a nerve expressing phony outrage when you've brought down my web site and won't do a simple thing like change the quota for a day.

"There's no way to do that."

Well, you're lying, because I'm familiar with the Apache software you're running and I know you can reset the disk quota in a minute.

"My supervisor told me it can't be done."

Well either you're lying to me or your supervisor is lying to you.

"What would be motive for lying to you?"

Oh, lots of reasons. You don't have the right people around. You don't know what you're doing. Your supervisor doesn't know what he's doing. No one knows how to do anything. Are you in India right now?

"I've told you all I can."

Then she tried to connect me to the "life cycle service" department, whatever that means. I had already been on the phone 45 minutes, on hold multiple times, and then she kept me on hold another half hour, before she told me she couldn't connect me and I could call them myself later in the day.


I'd been on the phone for almost 1½ hours at this point. She put me on hold again, and then connected me to some salesman named Sean. He took my order for the "upgrade" which (ironically) costs less than the service I'd been paying for.

The salesman, who had the same rude attitude that tech support had, told me that it would take a few hours or a couple of days before my web site would be up again.

I signed up for the service. Rather than wait any longer, I went onto my existing the web server and deleted huge swaths of graphics files that are rarely used, and managed to get the file usage below quota.

So the web site is up again, though in some corners of the web site you won't get a picture.

Now at least I have a day or two to move over to this new service. Hopefully there'll be no more down time.

I just can't believe the "screw the customer" attitude that Interland ( has. They shut me down with no warning, refused to take a simple step to deal with the situation, blamed the problem on me, lied to me, constantly gave me boilerplate crap, wondered why I was getting so angry, and blamed me for shouting.

This is problem with customer support across the industry. They put on these young people, often young girls, who know pretty much nothing, but have boilerplate paragraphs to read to you. Then they express outrage if you get mad at them.

Unfortunately, that kind of service is quite common, as I'll now illustrate with additional examples. and Around 2000 I bought a Dell computer, and gave them a credit card number. A year later, I noticed that they were charging me $20 per month for the MSN service which had come with the computer but which I'd never used. I was furious, called up the MSN people, screamed at the lady, and she took charge off my credit card.

This is the kind of game these companies play once they have your credit card number. I bought a computer from Dell. I never authorized any charges to Microsoft's MSN service. But they had my credit card number, and just did whatever they pleased with it.

This was probably the last time I ever used a "real" credit card number. Since then I've used ONLY virtual credit card numbers (see below), and I estimate that I've saved hundreds of dollars.

Yahoo. From 2002-2005 I ran an online Yahoo group called "My Ex-Husband is now my (financial) slave." I had 3,263 members, about 200 of whom were active. The discussion was about gender issues, and the membership spanned radical feminists to radical fathers' rights people. It was a very active group, had hundreds of postings per day, and I was proud to say that we helped a lot of people -- divorced men and women and even some adult children of divorce -- get through some very difficult times. Once or twice I think we even saved a life.

One day, I received an extremely offensive e-mail message from Garth Stockden, a politician affiliated with an extreme anti-American hate group called "Australia One Nation." He compared the members of "Ex Husband Now My Slave" to pedophiles. He said he was going to report to Yahoo that the group was a violation of Yahoo's anti-abuse policy.

The next thing I knew, much to my astonishment, was that Yahoo listened to him and, within an hour, deleted the entire group and my Yahoo ID. Instantly, with no notice.

I'm still in shock from all this, even though it happened two years ago. Yahoo screwed over 3,000 of it's own users because of some hate-filled bigot, but it's increasingly clear that when you're dealing with Yahoo then you're dealing with some of the stupidest people in the computer industry. I can just barely stand to think about Yahoo any more without getting sick to my stomach.

I've discovered the following things about Yahoo, talking to other people:

Yahoo is truly the armpit of the computer industry.

I strongly urge everyone to stay as far from Yahoo as possible. Whatever you do, don't give them a credit card number, or they'll screw you. If you MUST give them a credit card number, then use a virtual number, as described below.

The news from Yahoo this past week has been exceedingly gratifying to me. The CEO and several of his staff have been forced to resign because the company has been losing so much business to Google.

Yahoo has a business model that they can give NO customer service, and just get people to pay for online services. It's a rotten business model, and it's screwed a lot of people. It's gratifying to me to see Yahoo falling down. They deserve it.

Google. I have actually gotten e-mail responses from Google, which makes them a little better than Yahoo. I tried a couple of things with them.

A couple of years ago, I tried advertising this web site on Google, but after a few months I decided that I wasn't getting anything out of it, and canceled it.

Earlier this year I tried running Google ads on this web site, and it was a real farce. They don't let you select anything about the ads that run on your web site. They have some algorithm that decides what ads are good for you.

For example, when I ran an article on bird flu, it was accompanied by this ad: "*Protein Printing* Print proteins and more with the Calligrapher. *Cytomyx Biomarkers*" and this one: "Human DNA Product From High Quality Human Tissue Samples".

Writing about a Mideast peace plan brought this ad: "*Criminology peacemaking* Criminal Justice Degrees Get Your Degree Today!"

Writing about religion: "Empower women. Be a Catholic Sister Join us. Maryknoll Sisters

At the end, I think I made about $2.03 from advertising, so I canceled that service too.

I can't really complain that Google took money unreasonably. Their online software has fewer features than Yahoo's, but is better written and works better.

The problem with Google is quite different: They really screw you by not indexing your web site. I tried to get this web site listed on their "Blog Search," and it worked ok for a few days, but then they simply stopped.

Try it yourself. Here's the link you can use: You can see that they simply stopped indexing on January 23. I sent an e-mail message and actually got an answer, but the answer was just "screw you" boilerplate. I started using this web site for prescriptions a couple of months ago. When it works, it works well. But there are several problems with the software, and it makes mistakes. So beware. However, customer service is available, and you can also call your local Walgreens store. In the past, I used with no problems. (Wall Street Journal) First, I really do like the web site. It's updated frequently, it's attractive, and highly functional.

However, I'm not interested in using the investment tools; I just want news services for this web site. There are plenty of other online news services these days; they aren't as good as, but they're not bad.

So several years ago when I bought an online subscription, they offered me "two weeks free service" before they would charge my credit card and start the subscription. So I signed up.

When the year was up, they subtracted the two "free" weeks from the end of the one-year subscription. In other words, the "two free weeks" was a lie. This really annoyed me, so I canceled the subscription, and since I had given them a virtual credit number at the start, they had no way to charge me further.

I decided to live without the service for a couple of years until a few months ago, when they gave me a cut-rate offer that I decided to accept.

I will say once again, though, it's a very expensive service, but it's top-rate, especially if you have use for their investment tools, and the software works.

Virtual Credit Card Numbers. If you have a Citibank credit card, then you can go to and sign up for the virtual credit card number service.

With this service, you can log on any time and get a new "virtual" credit card number that you can use for online services. The rules are as follows:

I've used this service now probably 100-200 times in the past several years and am very satisfied with it.

I also tried similar services from American Express and Discover, and found them to be terrible. Their online software was poorly written, and charges could exceed the limits specified.

In the case of the Discover service, I used one of their numbers for my monthly Interland ( payment. It should have expired within a year, but Interland was able to charge to it for three years. I let it continue this way because I was curious to see how long before Discover would stop permitting charges to the expired virtual number. After three years, I finally had to give Interland another credit card number, and this time I gave them a Citibank number. The Discover service was a complete joke.

I've been in the enterprise software business for my entire career, and I can quickly spot well-written and poorly-written software. The American Express and Discover software was written by amateurs who didn't know how to write software. But it was clear from the start that the Citibank software was well-designed and well-written, using a separate database server to track virtual number charges. I recommend the Citibank service highly.

Universal Default. This is a different subject, but everyone should be aware of it.

Thanks to the Internet, the three credit tracking services (Experian (formerly TRW), TransUnion and Equifax) now can track instantly every credit card transaction. If you're late with any bill payment, they'll know immediately, which means that anyone else can find out.

You might have a credit card that charges 10% interest, but if you're a few days late with a payment on any OTHER bill, then your credit card company will know about it, and can raise your interest rate to 30%.

If you have several credit cards, and you're a little late on a bill payment, then ALL the credit card companies can raise your interest rates to 30%. I know someone that this happened to, and it was a disaster.

This is called "Universal Default." If you have $1,000 charged to credit cards, then you'll end up owing $300 interest by the end of the year. This is getting up to the "vig" charged by organized crime.

That's why banks that pursue these policies should be thought of as criminals participating in organized crime.

Citibank claims to have ended its Universal Default policy, but other banks have not. If you have credit cards and you're not aware of how this criminal activity works, you should be aware that missing a payment can be a disaster for you.

Our corrupt era. These online service abuses all have something in common: They treat individual humans as statistics, rather than as individuals. That's because their business model assumes that there's an unlimited number of people to draw on, and the only objective is to collect people.

So if Yahoo can offer a service that will draw 10 million new credit card numbers, then they'll offer it, even if it means that 10,000 people will be charged for a service that doesn't work for them. The only thing that that matters is the 10 million new credit card numbers. The 10,000 people who are screwed are in the same category as industrial waste -- just something that Yahoo has to put up with to make money. And they get rid of this "industrial waste" by providing no customer service, ignoring e-mail messages, and just charging credit cards.

Banks that practice the Universal Default criminal activity are doing the same thing. It all has to do with volume -- get as many people as possible paying criminally high interest rates so that they can make money. The people who are really screwed by this policy are just more "industrial waste."

This is the other side of a point that I've made several times before: that there's a lot of crime going on today, committed by desperate people who are in over their heads in investments or subprime mortgages or credit card debt.

These online companies make promises they can't fulfill to capture as many people as they can, just as a fishing boat will use a new kind of bait to capture as many fish as they can. They protect themselves by walling themselves off from their customers -- no e-mail responses or boilerplate e-mail responses, no customer service or boilerplate customer services.

To the online companies, people are just aggregates, not individuals. But the individual people, of course, are not fishes. They're people in trouble -- because of credit card debt, because of subprime mortgages, or whatever. This drives desperate individuals into crimes like embezzlement, which are ticking time bombs.

There's an old saying: "To err is human, but to really f---k things up takes a computer." So a company like Yahoo can provide a service to millions of people, but it can also really screw a significant subset of those people.

My guess about the reason that Yahoo has done so poorly is that enough people have finally gotten screwed that they refuse to have anything to do with Yahoo. The business model that says that there's an infinite supply of new people and new credit cards really does eventually run out.

As long as everyone's making money, no one worries about criminal activities by credit card companies, or about embezzlement by individuals. But when times get tough, retribution is relentless.

We're seeing that now on all sides. Individual who lied about their assets on mortgage applications, in order to obtain subprime mortgage loans, are paying the price. Builders and loan officers who colluded with one another are going to go to jail. Financial advisors who protected their own assets, but who made commissions by advising their clients to buy risky stocks are going to be skewered.

And now, as discussed my next article, the SEC is opening multiple investations in bankers' abuse of credit derivatives. The time of retribution for all this credit debauchery, mainly by people in the Boomer and Xer generations, is getting close. (28-Jun-07) Permanent Link
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Bank of International Settlements foresees possible new 1930s style Depression

Saying that "our understanding of economic processes may be less today" than it was in the past, the 2007 Annual Report of the Bank of International Settlements (BIS) notes that "that the run-up to the Great Depression had exhibited similar non-inflationary characteristics" to those seen today.

The report discusses how the growth of the global economy has continued at levels that are among the highest in history, and that, combined with historically low inflation, even the poorest countries have shared in this growing prosperity.

However, the report says that major currency imbalances and investors' extreme appetite for risk. It gives three specific threats, as summarized by the BBC:

Nigel Jenkins, currency strategist at Payden & Regal Global <font face=Arial size=-2>(Source: BBC)</font>
Nigel Jenkins, currency strategist at Payden & Regal Global (Source: BBC)

In response to the report, the BBC interviewed Nigel Jenkins, currency strategist at Payden & Regal Global, who said the following:

"The reason that we think that there won't be anything like the 1930s depression is that central bankers around the world have on the whole gotten this reduction of global liquidity pretty much right. You've got interest rates up to quite a normal level in the United States - we think they'll be stable there; the ECB [European Central Bank] has a little bit further to go - may 50 or 75 basis points further rate hikes by the end of this year; the Bank of Japan will be raising interest rates, but only at a glacial pace, and from a very low level. There is nothing in the economic data that suggests to us that global central banks really stand a chance of over-tightening interest rates, and it's the over-tightening of interest rates that would be the risk of the major downturn, and we just don't see that."

This response by Nigel Jenkins captures, in just a few brief, pithy sentences, everything that's totally wrong about today's mainstream macroeconomics. I don't blame Jenkins for this, because he's just quoting the standard stuff, but what he said is total nonsense.

It's to address stuff like this that last year I wrote my article on "System Dynamics and Macroeconomics," which shows how mainstream macroeconomics has failed to predict or explain anything, especially since 1995, and how this failure can cause similar results as in 1929. Mainstream macroeconomics has failed to predict or explain the stock market bubble of the late 1990s, or anything that's happened since the Nasdaq crash in 2000. And now we see Jenkins quoting the most banal claim of mainstream macroeconomics, the belief that the only thing that matters is interest rates.

But if you go back and look at the three items summarized above by the BBC, you'll see that Jenkins didn't address any of them. Why would stable interest rates prevent a loss of confidence in the American dollar, or a spike in confidence in the Japanese yen? How would stable interest rates protect firms that are swimming in debt from going under during a downturn? What Jenkins said makes as little sense as if he'd said, "Well, the birds have been chirping outside my office, and it's when the birds stop chirping that we have a risk of a major downturn, and we just don't see that."

The BIS report points out the huge credit imbalances in today's global economy, and says that "what's old is new again," as economists rediscover some concepts of a century ago:

"At the same time, in the early 2000s another perspective emphasising the role of quantitative aggregates, and especially credit, began to emerge. This perspective had distant roots in those theories of business fluctuations from the early part of the 20th century which had stressed the self-reinforcing processes that led to occasional booms and busts. It also borrowed from the intellectual tradition that highlighted the role of credit and speculative behaviour as a cause of financial instability. Finally, it retained elements of the more recent advances in economic theory, which emphasised how credit imperfections could amplify business cycles."

The report analyzes previous historical downturns, and finds them quite similar to the American economy today:

"Economic history is a useful guide in this respect. The Great Inflation in the 1970s took most commentators and policymakers completely by surprise, as did the pace of disinflation and the subsequent economic recovery after the problem was effectively confronted. Similarly, virtually no one foresaw the Great Depression of the 1930s, or the crises which affected Japan and Southeast Asia in the early and late 1990s, respectively. In fact, each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a “new era” had arrived. Similar surprises can be noted at a more micro level. Around the time of the failure of LTCM in 1998, the firm faced price shocks in various markets that were almost 10 times larger than might reasonably have been expected based on previous history. As a result, its fundamental assumptions – that it was adequately diversified, had ample liquidity and was well capitalised – all proved disastrously wrong."

The report notes that "many will say that our understanding of economic processes has improved thanks to this experience," but quickly discards it, pointing out that economists have no idea whatsoever how to predict or explain trends in excess capacity, import prices, wages, or even perceived inflation. They're saying, in much more diplomatic words, exactly what I'm saying: That mainstream economists don't know crap about what's going on in the world.

"Indeed, in the light of massive and ongoing structural changes, it is not hard to argue that our understanding of economic processes may even be less today than it was in the past. On the real side of the economy, a combination of technological progress and globalisation has revolutionised production. On the financial side, new players, new instruments and new attitudes have proven equally revolutionary. And on the monetary side, increasingly independent central banks have changed dramatically in terms of both how they act and how they communicate with the public. In the midst of all this change, could anyone seriously contend that it is business as usual?"

This 244 page report contains a wealth of historical and analytic information. I've only had a chance to skim through it today, but I'll be drawing on it more in the future.

Meanwhile, I'd like to post excerpts from a "Living History" article from the Salt Lake City Tribune, written by oral historian Eileen Hallet Stone:

Depression brought a prosperous Utah to its knees

"In 1929, a crowd gathered downtown on Main Street and watched haplessly as the ticker tape on the Salt Lake Tribune Building tumbled. After a record high of national prosperity, the stock market collapsed and the country spiraled into one of the worst economic downspins in American history.

During the Great Depression of the 1930s, banks and businesses failed, factories and stores closed, farm prices dropped, benefits dried up and unemployment soared. Twelve million citizens were suddenly jobless and without savings. Thousands lost their homes. For nearly a decade, the popular song "Brother, Can You Spare a Dime?" wailed the nation's despair.

"I don't think there's one person out of a thousand now that would believe what we went through," said Theodore "Pete" Houston of Sandy, who worked in steel mills, logging camps and stone quarries before the Depression cut him to the core.

In 1933, Utah's unemployment rate was the fourth highest in the nation. One of three Utahns was out of work. Those employed suffered dwindling hours and severe pay cuts. Others peddled wares, went door-to-door seeking labor in exchange for food or became shoeshine "boys." Families moved in together. Teenagers took to the road - a few less mouths to feed. And passing transients clamoring to work in the cities were run out of town.

Breadlines, soup kitchens and "city-operated shelters" opened along the Wasatch Front. They were branded "Hoover cafes" by a populace increasingly frustrated with President Hoover's inability to stem the depression.

"We were lucky to find jobs raking leaves, digging ditches or cleaning streets," Houston said. "Many people couldn't find work and went hungry for days. It was hardest on the kids. Imagine, children living on a crust of bread." ...

In the 1930s, Utah marriages and births went into a slump. Divorce rates rose. With scarce jobs, married men were first to be hired, unmarried men feared dismissal because they were single and working single women, most of them teachers, were forced to resign if they married.

As the depression deepened with no respite in sight, some lost faith in the American system, their future and themselves.

In 1929, Jack Findling had a charitable bent and was a leader in his community. ... Then the bottom fell out.

"My grandfather lost a lot of money, and found no way whatsoever to recoup his losses," said Joanne McGillis, who was a toddler when he died. "He had always helped others. Now he felt like an albatross around his family's neck. He ended up committing suicide."

Bereft of assets, broke and broken-hearted, Findling's wife, Esther, sold their home, furnishings, and possessions. She struggled to keep open the store.

"They were devoted to each other," McGillis said. "Nana was devastated. She worked hard. She never remarried."

"Once I built a railroad, I made it run, made it race against time. Once I built a railroad; now it's done. Brother, can you spare a dime?"

Generational Dynamics predicts that this is about to happen again, and the time may not be too far off. The Bank of International Settlements seems to agree. (25-Jun-07) Permanent Link
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The real estate market crisis is worsening and spreading significantly

The Bear Stearns debacle is just the "tip of the iceberg."

Index price of ABX-HE-BBB- 07-1 from Jan 19 to Jun 22, 2007 <font face=Arial size=-2>(Source:</font>
Index price of ABX-HE-BBB- 07-1 from Jan 19 to Jun 22, 2007 (Source:

The recent collapse of the ABX index, as illustrated in the adjoining graph, which I discussed in the companion article on the Bear Stearns bail-out, illustrates the continuing deterioration of the subprime mortgage market, and the mortgage market in general.

In fact, the entire real estate market has been continuing to deteriorate significantly. Here's a summary from a Bloomberg article last week:

"The worst is yet to come for the U.S. housing market.

The jump in 30-year mortgage rates by more than a half a percentage point to 6.74 percent in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, the National Association of Realtors reported.

"It's a blood bath," said Mark Kiesel, executive vice president of Newport Beach, California-based Pacific Investment Management Co., the manager of $668 billion in bond funds. "We're talking about a two- to three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually it will take the stock market and corporate profit."

Confidence among U.S. homebuilders fell in June to the lowest since February 1991, according to the National Association of Home Builders/Wells Fargo index released this week. Housing starts declined in May for the first time in four months, the Commerce Department reported yesterday. New-home sales will decline 33 percent from 2005's peak to the end of this year, according to the Realtors' group, exceeding the 25 percent three-year drop in 1991 that helped spark a recession."

These charts on housing starts show the total number of single-family homes begun in rolling 12-month periods, and compare that with the number begun in the period ended a year earlier. In the 12 months through May, 1.27 million single-family homes were started, a figure that is 25 percent below the number started in the 12 months through May 2006. <font face=Arial size=-2>(Source: NY Times)</font>
These charts on housing starts show the total number of single-family homes begun in rolling 12-month periods, and compare that with the number begun in the period ended a year earlier. In the 12 months through May, 1.27 million single-family homes were started, a figure that is 25 percent below the number started in the 12 months through May 2006. (Source: NY Times)

An article in Saturday's New York Times, titled "Homes Sell. Homes Don’t Sell. Builders Still Build" was accompanied by the adjoining charts. It underscores the point that home builders have been "far too optimistic," and have continued building new homes, even though existing homes weren't selling. This has resulted in historically high inventories of homes for sale.

In fact, a report last week by Bank of America analysts came out this week saying that losses in the housing market so far are just the "tip of the iceberg." Here's an excerpt:

"Losses in the U.S. mortgage market may be the "tip of the iceberg" as borrowers fail to keep up with rising payments on billions worth of adjustable-rate loans in coming months, Bank of America Corp. analysts said.

Homeowners with about $515 billion on adjustable-rate home loans will pay more this year, and another $680 billion worth of mortgages will reset next year, analysts led by Robert Lacoursiere wrote in a research note today. More than 70 percent of the total was granted to subprime borrowers, people with the riskiest credit records, they said.

Surging defaults on subprime loans have pushed at least 60 mortgage companies to close or sell operations and forced Bear Stearns Cos. to offer a $3.2 billion bailout for one of two money-losing hedge funds. New foreclosures set a record in the first quarter, with subprime borrowers leading the way, the Mortgage Bankers Association reported.

"The large volume of subprime ARMs [Adjustable Rate Mortgages] scheduled to reset at higher rates in '07 and '08 will pressure already-stretched borrowers," putting more loans into foreclosure, the Bank of America analysts wrote from New York. A collapse of the Bear Stearns funds "could be the tipping point of a broader fallout from subprime mortgage credit deterioration," they said."

What we're seeing is that more and more analysts and pundits are seeing a major financial crisis on the horizon.

When I talked to people in 2002 (five years ago) that we would be experiencing a stock market crash and a new 1930s style Great Depression, probably by the 2006-2007 time frame, my prediction was based on various long-term trends, some of them centuries old. In particular, I used a long-term exponential growth forecasting model, combined with an analysis of long-term price/earnings ratio trends to make the prediction.

This eventually led to a part of the Generational Dynamics forecasting methodology, related to long-term financial predictions.

People who dismissed this prediction at the time had three types of reasons: (1) They had no idea what I was talking about. (2) They claimed that exponential growth forecasting doesn't work. (3) They claimed that old trends are no longer relevant since "things are different" this time, because the Internet had made markets more transparent, blah, blah, blah. These people were all simply wrong.

And of course, my prediction is just as true today as it was in 2002. As with other Generational Dynamics predictions, I was able to predict what our final destination would be, but not the path we would take to reach that destination, nor the exact time frame.

As I've described before, the forecasting technique can narrow the time frame by matching short-term indicators to long-term trends.

For example, if there's a heat wave in New York in November, you don't assume that "things are different" this time, and that winter isn't coming this year. Instead, you track the temperatures from day to day until they fall back in line with the long-term trend prediction, and use matching techniques to estimate how far off winter still is.

Pundits, journalists and high-priced analysts never look at long-term trends. They look ONLY at short-term indicators. Since the short-term indicators are suddenly turning negative, the pundits are suddenly predicting a financial crisis.

If there's a blip in the figures next month, then the pundits, journalists, and high-priced analysts will turn positive again. In fact, even the tiniest improvement in the financial climate will cause them to turn positive, because that's what they do. They sell dreams and hopes and fantasies in order to make commissions and justify their salaries. They have NO IDEA what's going on in the world.

I sold my condo in 2005 and moved into an apartment because I estimated we were at the top of the housing bubble. That was obvious, based on long-term trend predictions and current indicators at that time. I have no money in stocks because I know that we're in a huge stock market bubble. I've been nowhere near a CDO in my life, as far as I know. Am I really that much smarter than all these high-priced analysts? The answer to that question is mind-boggling.

This isn't just true in the financial area. As I'm writing to this, I'm listening to some pundit criticize the Administration for not re-engaging the "peace process" in the Mideast. What is it with these guys' fantasies?

At least one thing that I've been saying for years is becoming more and more apparent to even the stupidest journalists: The major problem in the Mideast is not the Iraq war, but the conflict between Arabs and Jews. It's beginning to sink in with all but the densest journalists and politicians that the Palestinian situation is getting very dangerous.

These guys get the Mideast situation wrong for exactly the same reason that the financial analysts get the financial situation wrong: They look only at short-term indicators, and never look at long-term trends.

In 2003, I predicted that the new "Roadmap to Peace"would never succeed, it was based on long-term trends going back centuries. Especially relevant was the genocidal war between Arabs and Jews in the late 1940s, when Palestine was partitioned and the state of Israel was created. I predicted that the disappearance of Ariel Sharon and Yasser Arafat, both of whom were survivors of that war, would be part of a generational change that would lead to exactly that kind of genocidal war between Arabs and Jews.

Once again, Generational Dynamics tells you your destination, but not the path you'll take or how long it will take to get there. You narrow the window by matching short-term indicators to the long-term trends. The short-term indicators in Gaza and the West Bank are turning sharply negative, just as the financial indicators are turning sharply negative.

We know from articles in the Congressional Quarterly that Washington journalists, analysts and politicians have no idea what's going on in Iraq or the Mideast. They don't know the differences between Sunni and Shi'ite, they don't know that al-Qaeda is operating in Iraq, and they don't know that al-Qaeda is a Sunni organization.

Once again, the politicians, journalists, pundits, and high-priced analysts never look at long-term trends. They look only at short-term indicators, and that's why if some tiny bit of "positive" news appeared next week, they would all change their forecasts again.

But the long-term trend hasn't changed. The global financial system is headed for a generational crash, and the Palestine region is headed for a generational war.

The same is true of the prospect of a genocidal war with China. I mentioned this to someone recently, and he laughed and said it was "far fetched." Hell, the Chinese have been militarizing and preparing for war with us for 15 years, and they constantly threaten us with war over Taiwan. What more evidence do you need? Even if you believe that war can be avoided (it can't), then the idea certainly isn't "far fetched."

The American satirist Ambrose Bierce (1842-1913) said that "War is God's way of teaching Americans geography." He might also have said that "war is God's way of teaching Americans history," and "a Great Depression is God's way of teaching Americans economics." And he might have said the same about non-Americans as well.

Today I'm in the mood to close with a quote from the Bible -- the Old Testament, which is considered a holy book by Jews, Christians and Muslims alike. Here's Ecclesiastes 1:9-18:

"What has been will be again, what has been done will be done again; there is nothing new under the sun. Is there anything of which one can say, "Look! This is something new"? It was here already, long ago; it was here before our time.

There is no remembrance of men of old, and even those who are yet to come will not be remembered by those who follow.

I, the Teacher, was king over Israel in Jerusalem. I devoted myself to study and to explore by wisdom all that is done under heaven. What a heavy burden God has laid on men!

I have seen all the things that are done under the sun; all of them are meaningless, a chasing after the wind. What is twisted cannot be straightened; what is lacking cannot be counted. I thought to myself, "Look, I have grown and increased in wisdom more than anyone who has ruled over Jerusalem before me; I have experienced much of wisdom and knowledge."

Then I applied myself to the understanding of wisdom, and also of madness and folly, but I learned that this, too, is a chasing after the wind.

For with much wisdom comes much sorrow; the more knowledge, the more grief."

(24-Jun-07) Permanent Link
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Bear Stearns bails out defaulting hedge funds, preventing broad market meltdown

At the end of a dramatic week described by pundits as a "bloodbath," investment firm Bear Stearns caved in to other investment firms, and loaned $2.3 billion of its own money to stave off default of two of the hedge funds that it manages. Both of the hedge funds had heavily invested in credit derivatives related to subprime mortgage loans.

The near-collapse of these two hedge funds reflects a larger trend in the economy that the entire subprime mortgage industry may finally be close to collapse.

The turning point occurred at the beginning of this month as home foreclosure rates kept increasing, and it became apparent that the subprime mortgage industry was much worse off than officials had been saying. It's still deteriorating, as I discuss my the companion article on the real estate market.

Index price of ABX-HE-BBB- 07-1 from Jan 19 to Jun 22, 2007 <font face=Arial size=-2>(Source:</font>
Index price of ABX-HE-BBB- 07-1 from Jan 19 to Jun 22, 2007 (Source:

The resulting industry-wide investor loss of confidence is measured by the ABX-HE-BBB- 07-1 index, whose value started falling sharply early in June, as the adjacent graph indicates. I discussed this index in my February 22 article, How to interpret and price the ABX derivative table.

This index represents the value of certain derivative certificates known as CDOs, or collateralized debt obligations. These CDOs provide a kind of insurance that homeowners will pay off their subprime mortgage loans, but as the number of foreclosures increased, the CDOs lost value. The value of the CDOs corresponds to the ABX index shown in the graph.

The two Bear Stearns hedge funds had invested heavily enough in CDOs that when they collapsed in value, the entire hedge fund was in jeopardy. The CDOs had been purchased on a leveraged basis, which is similar to individuals buying stocks "on margin," something that was identified as a major cause of the 1929 stock market crash.

As the value of the CDOs kept falling, the hedge funds had to meet margin calls by supplying more and more cash to make up the loss in value. Within the last two weeks it became apparent that the hedge funds wouldn't be able to meet margin calls much longer, and the hedge funds were close to default.

Cutthroat negotiations

During the last two weeks, cutthroat negotiations have been taking place between Bear Stearns and the hedge funds' principal investors, including J.P. Morgan Chase & Co., Merrill Lynch & Co., Goldman Sachs Group Inc. and Barclays PLC. Not all the details are known, but a Saturday Wall Street Journal article and a Saturday New York Times article provide a number of details:

The Bear Stearns debacle is far from over, because the housing market crisis is far from over.

According to one pundit quoted by Bloomberg: "It's a blood bath. We're talking about a two- to three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually it will take the stock market and corporate profit."

This means that CDOs will continue to lose value and that the hedge funds will continue to default. So Bear Stearns will lose its $2.3 billion loan as well.

The Mark to Market scam

Convincing the Bear Stearns negotiators to put $2.3 billion into a failing hedge fund must have required quite a bit of arm-twisting.

The crisis was triggered by a fall in the value of CDOs, and the way that we know that the value of CDOs has fallen is by looking at the ABX-HE-BBB- 07-1, discussed above.

According to John Succo at, the published ABX index is being held artificially high, much higher than the "real" market value of CDOs. This indicates that CDO values have a lot farther to fall, with consequent impact on other hedge funds invested in CDOs.

Succo wrote his article six weeks ago, before the recent fall in the ABX index. He was wondering why CDO valuations were so high, in view of the continuing deterioration of the housing market. In a fair, transparent market, where everyone knows what's going on, the deteriorating housing market should cause CDO valuations to fall much more quickly. Well, why weren't they falling faster?

The reason is that there's a kind of scam going on. If the value of a stock share falls, then you can check the price on the New York Stock Exchange, or whatever stock exchange the share is traded on. There's an open, transparent market on stock shares. And according to the "Mark to Market" rule that I described above, anyone using stock shares as collateral must valuate them according to current market prices.

But what if your assets are in CDOs, rather than stock shares? How do you valuate them for Mark to Market purposes? There's no public market for CDOs; in fact, most CDO deals are done in smoke-filled back rooms of financial firms by men wearing green eyeshades. The ONLY publicly available gauge of the values of CDOs is the ABX index, and that index is set by agencies marketing the CDOs themselves. This is called "Mark to Model," but an online correspondent refers to it as "Mark to Myth."

The problem is that setting the ABX index involves a conflict of interest, as described by Succo on May 17:

"I asked a large broker firm to send over its smartest math person on Collateralized Debt Obligations (CDO) structuring. I wanted to know what I am missing: why is the market so sanguine in the face of deteriorating collateral values in the mortgage market? One of my firm's theses has been that, as the mortgage market deteriorates, investors holding CDO as an investment would realize losses and this would feed into other risky asset classes. Why aren’t losses being seen when the market is clearly deteriorating?

The team that came over was headed by a very smart gentleman. He was very good at math and very straightforward. Working for a broker I was prepared for some sugar coating. I didn’t get any.

The answer is simple and scary: conflict of interest.

He explained that due to the many layers of today's complicated credit products, the assumptions used to dictate the pricing and outcome of CDO are extremely subjective. The process is so subjective in fact that in order to make the market work an "impartial" pricing mechanism must exist that the entire market relies upon. Enter the credit agencies. They use their models, which are not sensitive to current or expected economic activity, but are based almost entirely on past and current default rates and cash flow to price the risk. This of course raises two issues.

First, it is questionable whether "recent" experienced losses over the last few years really represent the worst of the credit market (conservative). But even more importantly, it raises a huge conflict of interest: the credit agency's customers are the very issuers of the tranches they rate. The credit agencies, therefore, need to compete for business based at least in part on the ratings they are willing to give these tranches. As a result, they will only downgrade when forced to by experienced losses; not rising default rates, not a worsening economy, but only actual, experienced losses. Even more disturbing, they will be most reluctant to downgrade the riskiest tranches (the equity tranches) since those continue to be owned by the issuers even after the deal is sold.

So even though the mortgage market has deteriorated substantially, mark-to-market losses by those holding the CDO paper have generally not been realized simply because the rating agencies have not changed their ratings for all the above reasons. Accounting rules only require holders of the paper to mark prices according to the accepted model, not actual prices. For example, below is a chart of the actual BBB minus tranch of the mortgage-backed securities pool from November '06 to present. [Note: See the chart of the ABX index near the beginning of this article, and note that on May 17, which is when Succo was writing this, the index value was considerably higher than it is today. - JJX] Actual prices where traders can really buy and sell is substantially lower than where investors are marking their positions.

The levels at which investors are carrying the paper is not reflecting underlying reality as the holders simply hold their collective breath and the rating agencies ignore a worsening environment.

I asked them what would force the rating agencies to change their ratings and the response was "it's just a matter of time if the market continues to deteriorate, for the agencies at some point will be forced by the cumulative losses to acquiesce." Because these losses have been compressed, any re-adjusting of ratings by these agencies are likely to result in a massive repricing of risk."

Succo's analysis, written a month before the Bear Stearns debacle, shows why Wall Street was so anxious to avoid a default; the CDO portfolio held by the Bear Stearns hedge funds would have to be sold off at fire sale prices. This would force the valuation of ALL CDOs in ALL hedge fund portfolios throughout the industry to be revalued, according to Mark to Market rules.

Let's repeat a brief portion of the above article:

"The credit agencies, therefore, need to compete for business based at least in part on the ratings they are willing to give these tranches. As a result, they will only downgrade when forced to by experienced losses; not rising default rates, not a worsening economy, but only actual, experienced losses. Even more disturbing, they will be most reluctant to downgrade the riskiest tranches (the equity tranches) since those continue to be owned by the issuers even after the deal is sold."

A Bear Stearns default would provide actual "experienced losses," forcing the credit agencies to downgrade their ratings.

The scam I've been describing is based on a conflict of interest that credit agencies have. But in fact, all the parties to this entire deal have conflicts of interest.

J.P. Morgan and the other bankers used extortion techniques ("Pour $2.3 billion of your own money into the hedge funds, or we'll shut your whole firm down!") to get Bear Stearns to comply. Was Tony Soprano one of the J.P. Morgan negotiators? I guess the Bear Stearns negotiator should consider himself lucky that he wasn't whacked.

The reason that Morgan and the other bankers used illegal extortion techniques is because of their own conflicts of interest. They're in the same position as the credit agencies -- they want to keep CDO valuations and the ABX index as artificially high as possible, in order to protect their own portfolios and the portfolios of their clients.

This is, once again, the Principle of Maximum Ruin in action. Every day that the global financial bubble is propped up by such subterfuge and extortion techniques, the bubble gets worse. This means that more people are put at risk, and more of their money is put at risk. In the end, the maximum number of people will be ruined to the maximum extent possible -- the Principle of Maximum Ruin.

Let's take one more look at the last paragraph of Succo's analysis:

"I asked them what would force the rating agencies to change their ratings and the response was "it's just a matter of time if the market continues to deteriorate, for the agencies at some point will be forced by the cumulative losses to acquiesce." Because these losses have been compressed, any re-adjusting of ratings by these agencies are likely to result in a massive repricing of risk."

That's the situation in any bubble. As long as financial officials keep propping the bubble up, it just gets worse, with even more disastrous results when the bubble bursts.

In fact, that's the simple conclusion of the Bear's decision on Friday to pour $2.3 billion of its own money into a hedge fund that's going to fail anyway. That $2.3 billion is good money going after bad, which is what we're going to see a lot more of in the weeks and months to come.

The collusion and extortion that went on this week with the Bear crisis (which, as we've stated, is not over) is being accepted now, because people are desperate to believe any fairy tale that tells them that the market can be saved. After the crash occurs, these people will be blamed for harming the economy, and many of these high-flying financiers will be subject to criminal investigations and perhaps jail.

From the point of view of Generational Dynamics, a generational stock market crash is overdue. 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. We're now overdue for the next one.

It could happen next week, next month or next year. But when it happens, massive numbers of people will become unemployed, bankrupt and homeless. Many high-flying financiers will be subject to criminal investigations, but mostly they'll stay out of jail because they have the resources to hire big law firms to defend them. The real problem is that many ordinary people will go to jail because of crimes they committed out of desperation, because they had listened to the high-flying financiers, and "borrowed" money that wasn't theirs, hoping to stave off homelessness and bankruptcy. This result will be made much worse by actions like this week's bailing out of the Bear Stearns hedge funds. (24-Jun-07) Permanent Link
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1946 Intelligence Report: Islam - A Threat to World Stability

This report clarifies a lot of today's world.

The 1946 Intelligence Report, which is posted on Daniel Pipes' web site, is a thorough examination of the world at that time, just after the end of World War II. It was confidential at the time of its publication by Military Intelligence Service of the U.S. War Department, and was declassified in 1979.

I strongly urge everyone to read the entire report, as it contains amazing information about many countries of the world as viewed by hardnosed intelligence officers of 1946. In this article, we're going to focus on just the fourth chapter, "Islam: A threat to world stability."

The right frame of mind

As you read the excerpts from this report, try to put yourself in the frame of mind of the people living at that time. The world was still traumatized from the horror of World War II, and only a few short months had passed since America had dropped nuclear weapons on Japanese cities.

Much of the world was still on the verge of starvation because of the war:

"The world is facing an acute food shortage in 1946. Supplies are currently short in every important item, including grains, meats, sugar, and fats and oils. Unless foods are carefully allocated and equitably distributed, the people of many areas will be forced to subsist on supplies inadequate to insure against disease and unrest. ...

The 1945 wheat crops failed to meet the expectations of most of the European governments. The disappointing harvest was caused, in part, by inadequate plantings, insufficient fertilizer, and unfavorable weather. Some agricultural areas had been battlefields. Farmer hoarding, inadequate transport, and black market operations, accompanied by a breakdown in collection and distribution procedures and other governmental weakness in a number of countries, further contributed to low grain collections." (p. 44)

Even worse, many people felt that after two world wars, a third world war with Communism was not far behind. As Hannah Arendt wrote in the introduction to her 1950 book, The Origins of Totalitarianism:

"Two world wars in one generation, separated by an uninterrupted chain of local wars and revolutions, followed by no peace treaty for the vanquished and no respite for the victor, have ended in the anticipation of a third World War between the two remaining world powers. This moment of anticipation is like the calm that settles after all hopes have died. ...

Never has our future been more unpredictable, never have we depended so much on political forces that cannot be trusted to follow the rules of common sense and self-interest -- forces that look like sheer insanity, if judged by the standards of other centuries. ...

We can no longer afford to take that which was good in the past and simply call it our heritage, to discard the bad and simply think of it as a dead load which by itself time will bury in oblivion. The subterranean stream of Western history has finally come to the surface and usurped the dignity of our tradition. This is the reality in which we live. And this is why all efforts to escape from the grimness of the present into nostalgia for a still intact past, or into the anticipated oblivion of a better future, are vain."

The 1946 Intelligence Report on Islam

So, having set the mood for you, let's now take a look at what the 1946 Intelligence Report had to say about Islam:

Islam: A Threat to World Stability

"The Moslem world sprawls around half the earth, from the Pacific across Asia and Africa to the Atlantic, along one of the greatest of trade routes; in its center is an area extremely rich in oil; over it will run some of the most strategically important air routes.

With few exceptions, the states which it includes are marked by poverty, ignorance, and stagnation. It is full of discontent and frustration, yet alive with consciousness of its inferiority and with determination to achieve some kind of general betterment.

By today's standards, this was an extremely insensitive view of Muslims, but it's actually just the opposite of what it first seems. America has always been an extremely idealistic nation, believing that people who try to better themselves can do so. The report emphasizes the poverty and lack of education of many Muslims, but also says that they can better themselves, as Americans did.

More important, the analysis now becomes much more specific:

"Two basic urges meet head-on in this area, and conflict is inherent in this collision of interests. These urges reveal themselves in daily news accounts of killings and terrorism, of pressure groups in opposition, and of raw nationalism and naked expansionism masquerading as diplomatic maneuvers. The urges tie together the tangled threads of power politics which — snarled in the lap of the United Nations Assembly — lead back to the centers of Islamic pressure and to the capitals of the world’s biggest nations.

The first of these urges originates within the Moslems’ own sphere. The Moslems remember the power with which once they not only ruled their own domains but also overpowered half of Europe, yet they are painfully aware of their present economic, cultural, and military impoverishment. Thus a terrific internal pressure is building up in their collective thinking. The Moslems intend, by any means possible, to regain political independence and to reap the profits of their own resources, which in recent times and up to the present have been surrendered to the exploitation of foreigners who could provide capital investments. The area, in short, has an inferiority complex, and its activities are thus as unpredictable as those of any individual so motivated."

Fast growth of Muslim populations

This brings us the major conundrum about Muslims of the world: Why have Muslim populations -- Sunni Muslim populations in particular -- been growing twice as fast as Christian and other populations?

Here are the figures, from the The CIA Factbook, 2005:

         Population Growth Rate

***** Western countries: United States 0.92% United Kingdom 0.28% France 0.37% Germany 0.00% Israel 1.20%

***** Other non-Muslim countries: Russia -0.37% Burma 0.42% China 0.58% Thailand 0.87% India 1.40% Mongolia 1.45%

***** Muslim countries: Iran 0.86% (Shia Muslim) Indonesia 1.45% (Below all Sunni Muslim) Uzbekistan 1.67% Turkmenistan 1.81% Syria 2.45% Saudi Arabia 3.27% West Bank 3.3% Gaza Strip 3.89% Pakistan 2.01% Qatar 2.61% Kuwait 3.44% Yemen 3.45%

According to the 1946 Intelligence Report, Muslims comprised 14% of a world population 2.2 billion. Today, the world population is 6.5 billion, and Muslims comprise over 20%.

Why have Muslim populations been growing so much more quickly?

I've asked many Muslims this question, and have never gotten an answer. But the last paragraph from the report, quoted above, provides support for my personal favorite theory.

You may recall that in mid-April I posted an article about the coming election in Turkey, and I summarized the history of Turkey since the fall of Constantinople in 1453.

The fall of Constantinople to the Ottoman Turks is (arguably) the most important worldwide event of the last millennium. It catapulted the Ottoman Empire into a series of successful wars that spread Islam across much of the world.

So the destruction of the Ottoman Empire at the end of World War I was a cataclysmic disaster for Sunni Muslims. Turkey turned into a secular state, rejecting even symbols of Islam, and ended the worldwide Sunni Muslim Caliphate, centered in Istanbul.

So now we see the meaning of these sentences from the report: "The Moslems remember the power with which once they not only ruled their own domains but also overpowered half of Europe, yet they are painfully aware of their present economic, cultural, and military impoverishment. Thus a terrific internal pressure is building up in their collective thinking."

This, then, is my theory for why the Sunni Muslim population has been growing twice as fast as the rest of the world: The "internal pressure" turned into a pressure on men and women to have as many children as possible.

For some reason, some people recoil in horror when I provide this explanation, and yet it's really quite reasonable and makes a lot of sense. Everyone agrees that social pressure, especially on women, plays a big part in any family and in any society -- in the ways in which families live, even in the names they give their children. So it's quite reasonable that societal pressure influence men and women as to how big their families should be.

So when the report says that Muslims intend, "by any means possible, to regain political independence," it seems to me that having many children to fight in the next war is exactly what would be done.

You may notice from the list of population growth rates above that the population growth rate in Gaza is 3.89% - almost the highest in the world, in a small strip of land that's almost the most densely populated in the world. It's hard to get past the feeling that the people of Gaza have been purposely having as many children as possible, in preparation for a war with Israel. That appears to be how the world works.

Over the decades I've heard and read many theories about birth rates -- that poor people have fewer children, that poor people have more children, that Catholics have more children than Protestants (referring to the use of contraceptives), and others. Having lots of children gives a country or society a great deal of power.

The report has thus described the first of the "urges [that] reveal themselves in daily news accounts of killings and terrorism, of pressure groups in opposition, and of raw nationalism and naked expansionism masquerading as diplomatic maneuvers."

This is not a kind appraisal by today's standards, but go back to the beginning of this article and see again how differently people in 1946 looked at the world.

Map of the Muslim world, from the 1946 Intelligence Report.
Map of the Muslim world, from the 1946 Intelligence Report.

Islam - Strengths and weaknesses

The Intelligence report continues with the reasons for "killings and terrorism ... and ... raw nationalism and naked expansionism masquerading as diplomatic maneuvers":

"The other fundamental urge originates exteranlly. The world's great and near-great Powers covet the economic riches of the Moslem area and are also mindful of te strategic locations of some of the domains. Their actions are also difficult to predict, because each of these Powers sees itself in the position of the customer who wants to do his shopping in a hurry because he happens to know that the store is going to be robbed."

So the authors of this report are just as hard on the non-Muslim nations, painting them as a gang of robbers and thieves ready to take advantage of and plunder the Muslim countries.

You just know that this has to end badly. The report continues:

"In an atmosphere so sated with the inflammable gases of distrust and ambition, the slightest spark could lead to an explosion which might implicate every country committed to the maintenance of world eace through the United Nations Organization. An understanding of the Moslem world and of the stressas and forces operative within it is thus an essential part of the basic intelligence framework."

The report goes on to give a brief history of the Muslims, and then a list of strengths and weaknesses. The weaknesses include the following:

Next, the report turns to the strengths of the Muslim community:

Today we can see that both of these "forces" were justified. The hatred of British and American involvement in the Mideast was a major motivating factor for al-Qaeda and Hizbollah, and remains so today.

And it was two years after the report -- on May 15, 1948 -- that the state of Israel was created. Palestinians today still commemorate May 15 every year as "Al Naqba - Catastrophe Day."

However, it would be a mistake to believe, as some do, that if there hadn't been a state of Israel, or if there had been no Jews, then there would be no problems today in the Mideast.

As the report said a few paragraphs earlier: "The Iranian has always looked upon the Arab as a wild man and upon the Turk as a 'son of a dog'; the Turk in turn considers the Iranian a degenerate but agrees with his views of the Arab; and so goes the cycle of animosity. These mutual dislikes have existed for centuries, but they have a deeper meaning in the present era of nationalism."

What this paragraph indicates is that, without Israel, and even without Jews, the Mideast would still be building to a new war. In fact, we can see that already in the Palestinian civil war, as well as the increasing hostility between Iran and Syria on the one hand, and Saudi Arabia, Egypt and Jordan on the other.

The chapter concludes with a final estimate:

"If the Moslem states were strong and stable, their behavior would be more predictable. They are, however, weak and torn by internal stresses; furthermore, their peoples are insufficiently educated to appraise propaganda or to understand the motives of those who promise a new Heaven and a new Earth.

Because of the strategic position of the Moslem world and the relentlessness of its peoples, the Moslem states constitute a potential threat to world peace. There cannot be permanent world stability, when one-seventh of the earth’s population exists under the economic and political conditions that are imposed upon the Moslems."

What's remarkable about this report is how prescient it was.

This 1946 assessment of Islam was just a 10-page chapter in a larger Intelligence Report, but those 10 pages foresaw every major problem the world faces today in the Mideast. In fact, it could even be said that they predicted the Clash of Civilizations world war, long before Samuel Huntington did.

The irrelevance of politics

Many people blame today's problems on President Bush or the Iraq war or the Afghan war or President Clinton's policies. I heard several pundits this week blame the Hamas takeover of Gaza on President Bush's not "being engaged" in the Mideast process, whatever the Mideast process is supposed to be.

Well, President Harry Truman got "engaged" in the Mideast process in 1948, when he supported the partitioning of Palestine and the creation of the state of Israel. And so, "being engaged" doesn't necessarily lead to peace.

It's clear from the 1946 Intelligence Report that everything happening today was known then. The only thing that's changed is that new generations of kids have come along. These kids have absorbed the resentment and fury of their parents, and are willing to do something about it, where their parents and grandparents were not. But the resentment and fury has been there all along -- at least since the destruction of the Ottoman Empire in 1921, and arguably at least as far back as 1689, when the Ottomans disastrously lost the War with the Holy League.

If you don't think that anyone cares about a war that happened centuries ago, then remember that Americans are constantly referring back to our own Revolutionary War and the principles on which it was fought. Great concepts and ideas can last for many centuries. And the French speak constantly of the French Revolution.

This is something that even many people who have some familiarity with generational theory don't understand, even those who have read works by William Strauss and Neil Howe, the founding fathers of generational theory. A basic principle of their work, as well as of Generational Dynamics, is that politicians have no predictable effect on the major events that are coming. It's completely a waste of time to argue about politics, since nothing that any politician does or doesn't do, says or doesn't say, can have any predictable effect on what's coming.

From the point of view of Generational Dynamics, every major event happening today has been in the cards for decades, and maybe even centuries.

You can't stop what's going to happen, but you can prepare for it. That's why I keep saying: Treasure the time you have left, and use the time to prepare yourself, your family, your community and your nation. (23-Jun-07) Permanent Link
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Hamas' stunning Gaza victory shocks entire Mideast

A major realignment of unknown proportions is occurring throughout the Mideast.

Fatah should have won last weekend. Fatah is considered the "moderate" of the two major Palestinian political groups. Fatah recognizes the existence of Israel and has renounced violence. Fatah leader and Palestinian President Mahmoud Abbas (Abu Mazen) is favored by the West as someone who is willing to work for a two-state solution, a Palestinian state side-by-side by Israel. Israel and the West like Abbas for that reason. Fatah has more men, and more weapons, thanks to supplies from the US and Israel.

Palestinian Territories <font face=Arial size=-2>(Source: Der Spiegel)</font>
Palestinian Territories (Source: Der Spiegel)

Hamas should be a lot less powerful. Hamas is a terrorist group committed to using any violence necessary to bring about the destruction of Israel. Israel and the West don't Hamas.

And yet, Fatah's larger forces simply crumbled under Hamas's lightning attack. Mohammed Dahlan, head of Fatah's security forces in Gaza, was out of town and was in no hurry to return. Hamas showed enormous energy in battle. Fatah showed little. Hamas even committed the atrocity of throwing Abbas's cook to his death from the 18th floor of his apartment block in Gaza. By the time Abbas and Dahlan called for any real action, the war was over and Hamas had won.

The fact that an attack was coming could hardly have been a surprise. That Hamas was preparing for a summer war has been rumored for months; in fact, I've mentioned it on this web site several times.

When the fighting was over, it was quite clear that the attack had indeed been planned for months, as was shown the particularly spectacular attack on a Fatah security headquarters building, blown up by a bomb planted in a tunnel beneath the building, dug from a nearby home over a period of months.

Now that the fighting is over, there are many people who are not only shocked, but furious, starting with Mahmoud Abbas himself.

Abbas, who was formerly committed to getting along with Hamas, both on the ground and in a "unity government," immediately dismissed the Hamas ministers in the Palestinian Authority, and replaced them with new people.

In a speech following the Hamas victory, Abbas lashed out at Hamas, calling them "murderous terrorists, and accusing them of trying to build an "empire of darkness" in Gaza. He described in great deal a tape of Hamas members planting bombs under Gaza's main road, preparing to blow him up as he travels to his office.

The increasingly harsh rhetoric marks a turning point in the attitudes of Israelis, Arabs and West Bank Palestinians, as the magnitude of the Hamas victory is beginning to sink in.

Long time readers of this web site will recall that ever since Yasser Arafat died, I've been watching to see when the Palestinians would be so infuriated at the Israelis that they would be ready to smash down Israel's security wall and pursue a full scale crisis war. On several occasions I've mentioned that I simply hadn't seen anything approaching that kind of fury yet. For example, if Israeli Prime Minister had called the Palestinians sleazebags to a crowd of cheering Israelis, or if Mahmoud Abbas had called the Israelis scuzzbags to a crowd of cheering Palestinians, that would have made me sit up and take notice. But that simply hasn't happened.

But it IS happening between the two Palestinian groups, Fatah and Hamas. Those who still believe that some sort of Middle East peace agreement is possible should understand that a line has been crossed, and it will not be possible to go back across that line.

The Hamas victory last weekend was an enormous shock to Fatah, since they were totally unprepared for it. It might be compared to the surprise attack on Pearl Harbor in 1941.

A crisis war is catalyzed by exactly this kind of shock, as described by William Strauss and Neil Howe, the founding fathers of generational theory:

"The catalyst can be one spark or, more commonly, a series of sparks that self-ignite like the firecrackers traditionally used by the Chinese to mark their own breaks in the circle of time. Each of these sparks is linked to a specific threat about which the society had been fully informed but against which it had left itself poorly protected. Afterward, the fact that these sparks were foreseeable but poorly foreseen gives rise to a new sense of urgency about institutional dysfunction and civic vulnerablity. This marks the beginning of the vertiginous spiral of Crisis."

This is a perfect description of the Hamas victory last weekend. The Hamas attack was foreseeable, but Fatah made no particular attempt to protect itself against it.

What sometimes happens in cases like this, in generational Crisis eras, is that the society panics and overreacts. That's what happened last summer when two Israeli soldiers were kidnapped near the Lebanon border and and Israel panicked and launched the Lebanon war within four hours, with no plan and no objectives.

Today the potential for overreaction is certainly present. The Israelis are extremely alarmed over "the emergence of Hamastan on the border fence."

(There are a few joking phrases being thrown around. Some people ironically refer to a brand new "two-state solution," but this time the two states are Gaza, now called "Hamastan," and the West Bank, now called "Fatahstan." The joke's names are based on names of other Muslim states, such as Pakistan or Afghanistan.)

Even more significant is the fact that many Western states are now openly siding with Fatah against Hamas, and even see the current situation as an opportunity.

The US and Europe had ended aid to the Palestinians when Hamas won the parliamentary elections early in 2006, on the grounds that Hamas is a terrorist organization, committed to the destruction of Israel.

Now that Abbas has thrown Hamas out of the government, the West is resuming aid to the Palestinians again -- only targeted exclusively to Fatah.

As one commentator described the situation, "One of the more remarkable features of the past few days has been the almost indecent haste with which the key Quartet players - America and the EU - have rushed to restore ties with the newly formed government of Palestinian Prime Minister Mahmoud Abbas. Suddenly everyone - the Israelis, the Americans, Britain, Brussels - wants to talk to the Palestinians and give them support."

So Israel and the West have clearly and openly taken sides with Fatah against Hamas, but so have major Arab governments in the region.

Over Hamas's objections, Egypt's President, Hosni Mubarak, will be hosting a summit meeting this weekend, inviting Abbas, Olmert, and Jordan's King Abdullah. Abbas is reportedly insisting that the summit will be fruitless if it does not set in train a process aimed at a final resolution of the key issues in the Israel-Palestinian conflict.

That kind of resolution is, of course, completely impossible, as we've been discussing on this web site for the last few years. But Abbas's demand reflects the fact that there does not exist such a resolution, and that the region will continue to descend further into chaos.

In fact, the support for Abbas from some Arab quarters goes much deeper. Gaza is a very poor region, with not enough food or medicines, Hamas had tens or hundreds of millions of dollars in weapons stashed away for this war. These weapons had to be supplied and smuggled by outsiders, and most people assume that the perpetrators were Iran and Syria. This is extremely worrisome to Arab governments who fear that they will be targeted.

An op-ed titled "The Gaza Earthquake," appearing in the Qatar newspaper Al-Sharq Al-Awsat editor Tariq Al-Humayd wrote:

"The preparedness of the Hamas fighters... proves that while Hamas and its leaders were crying out about lack of funds, Hamas was [actually] amassing arms and ammunition. Someone is providing it with regular funding, and as a result it appeared to be better prepared [for fighting] than the legitimate authorities."

The Jordanian journalist Raja Talib wrote in the government daily Al-Rai:

"Reality has shown that even if Hamas was originally a Palestinian [movement], it is now completely [committed] to the ideological agenda of Tehran -- in terms of its perception of the enemy and of the struggle against the enemy; in terms of its political priorities; and in terms of its financial and material backing. Thus, Hamas is setting back -- by decades -- the Palestinian cause, the development of the military and political struggle [for Palestine], and the PLO plan [for liberating Palestine], so that they will [all] serve Iran's needs."

The result is that the possibility of a Western attack on either of those two countries is becoming more evident, and such an attack may even be tacitly supported by Arab countries.

This level of fury in the Mideast is a step up from what we've seen before. The expectation is that the mutual hatred can only increase. As we said, a line has now been crossed, and it cannot be undone without a genocidal crisis war.

From the point of view of Generational Dynamics, the region is headed for a new genocidal war between Arabs and Jews, refighting the genocidal war that was fought in the late 1940s when Palestine was partitioned and the state of Israel was created. In 2003, when the world was euphoric about the new "Roadmap to Peace," I predicted that the Roadmap would never succeed, and that the disappearance of Ariel Sharon and Yasser Arafat would be part of a generational change that would lead to exactly that kind of genocidal war between Arabs and Jews. Since Arafat died 2½ years ago, the situation in the Palestinian territories has gotten measureably worse almost every single day.

As usual, Generational Dynamics tells you your final destination, but not how you'll get there. What we're seeing now, day by day, is the series of steps, shocks and surprises that are leading the Mideast to a new massive war. We can't predict how long it will take, but we can predict that it's coming soon, with complete certainty. (22-Jun-07) Permanent Link
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Generational composition of Congress

Why can't Congress govern?

I'm constantly pointing out that the reason that the country is paralyzed and Congress is so incompetent is because it's run by Boomers, and Boomers are incompetent at governing (and Xers are even worse).

A web site reader wrote to me and asked how this can be true if all the leaders of Congress are from the Silent generation -- that is, from the generation that grew up during World War

So I went to this web page, which provides an age breakdown, and I prepared this table:

                  Senate   House    Combined
                 -------  -------   ---------
      Age Group   #   %     #    %    #   %   Generation
      ---------  -- ---    --  ---  --- ---   ------------
      30-39       0  0%    20   5%   20  4%   Generation-X
      40-49      10 10%    89  20%   99 18%   Xer/Boomer
      50-59      28 28%   166  38%  194 36%   Boomer
      60-69      37 37%   124  28%  161 30%   Boomer/Silent
      >70        24 24%    39   9%   63 12%   Silent

By splitting the 40-49 and 60-69 age groups evenly between the two generations in each case, you get this result:

                  Senate   House    Combined
                 -------  -------   ---------
      Gen-X         5%     15%         13%
      Boomer       52%     62%         60%
      Silent       42%     23%         27%
The important split here is between the Silents (who grew up during World War II and remember very well what happened) and the Xers and Boomers (who have no personal memory of WW II and think it wasn't such a big deal).

It's true that the top leaders in both the House and Senate are Silents, but that doesn't mean that they get their way. It's the Boomers and Xers that have most of the votes but have no idea what they're doing. All they know how to do is argue; they don't know how to govern.

As I've said many times, the survivors of World War II, the GI Generation and the Silent Generation, did great things -- they created the United Nations, World Bank, Green Revolution, World Health Organization, International Monetary Fund, and so forth. They created these organizations and managed them for decades with one purpose in mind: That their children and grandchildren would never have to go through anything so horrible as World War II.

And the relevant question for today always is: Can you imagine clown circus Congress today doing anything remotely like those accomplishments? They're so dumb, they couldn't even figure how to vote themselves a pay raise. (20-Jun-07) Permanent Link
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Ban Ki Moon blames Darfur genocide on global warming

Damn! He's blaming the Darfur crisis civil war on America!!

In one of the most remarkable explanations I've heard so far, United Nations Secretary General Ban Ki Moon claims that the people of Darfur "lived amicably" until global warming affected the climate.

His opinion appeared on Saturday in an article he authored in the Washington Post:

"Almost invariably, we discuss Darfur in a convenient military and political shorthand -- an ethnic conflict pitting Arab militias against black rebels and farmers. Look to its roots, though, and you discover a more complex dynamic. ...

Two decades ago, the rains in southern Sudan began to fail. According to U.N. statistics, average precipitation has declined some 40 percent since the early 1980s. ...

It is no accident that the violence in Darfur erupted during the drought. Until then, Arab nomadic herders had lived amicably with settled farmers. A recent Atlantic Monthly article by Stephan Faris describes how black farmers would welcome herders as they crisscrossed the land, grazing their camels and sharing wells. But once the rains stopped, farmers fenced their land for fear it would be ruined by the passing herds. For the first time in memory, there was no longer enough food and water for all. Fighting broke out. By 2003, it evolved into the full-fledged tragedy we witness today."

The Atlantic Monthly article by Stephan Faris (also available here for free) completes the picture as follows:

"Among the implications arising from the ecological origin of the Darfur crisis, the most significant may be moral. If the region’s collapse was in some part caused by the emissions from our factories, power plants, and automobiles, we bear some responsibility for the dying. “This changes us from the position of Good Samaritans—disinterested, uninvolved people who may feel a moral obligation—to a position where we, unconsciously and without malice, created the conditions that led to this crisis,” says Michael Byers, a political scientist at the University of British Columbia. “We cannot stand by and look at it as a situation of discretionary involvement. We are already involved.”

So there you have it. Darfur's genocidal civil war finally has a politically correct cause -- global warming. It's America's fault, and the Europeans' fault.

What about the other genocides? There was the 1994 Rwanda genocide, and the 1990s Bosnian genocide, and the 1970s Cambodian killing fields genocide. There were dozens of genocides in World War I and World War II. Were those caused by global warning too?

As fatuous as this reasoning is, it contains an interesting admission: That the Darfur genocide is not the Darfurians' fault. The reason I call that an "admission" is because the previous position is that the genocide was the fault of the Janjaweed militias and of the Sudan government in Khartoum. By blaming it on the Americans and the Europeans, Moon is exonerating the people involved. After all, global warming isn't the fault of these "amicable" people, is it? No, it's the fault of those venal, thoughtless Americans. How convenient.

It's worthwhile to summarize how the Darfur civil war came about, because it follows a fairly standard generational path. Here's a brief summary:

So that's the sequence of events that led to the current Darfur genocide.

In 2004, when the Darfur situation first gained international focus, I wrote that the U.N. is completely irrelevant to the Darfur genocide, and that it would not be stopped until it's run its course. That has continued true to this day. The genocide has gotten worse, and has even spread into neighboring countries Chad and Central African Republic.

So this shot out of the blue, where Ban Ki Moon is blaming it on global warming is actually hilarious. It shows just how ignorant the people in power are about what's going on in the world today. (19-Jun-07) Permanent Link
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Congressional xenophobia risking confrontation and retaliation from China

Senators are promising a tough "veto-proof" law targeting China's alleged currency manipulation.

The bill is supported by both Democrats and Republicans. Republic Senator Lindsey (S.C.) urged the Bush administration to support the bill. Democratic Senator Charles Schumer (NY) predicted overwhelming support from both parties -- enough to override any presidential veto.

The bill is prompted by claims that China has been manipulating its currency, making it undervalued, and using it to pursue unfair trade practices.

Senators are particularly infuriated by a report from the Treasury Department last week did not find that China had practiced currency manipulation.

According to the "Report to Congress on International Economic and Exchange Rate Policies - June 2007":

"Although the renminbi [Chinese currency, also called "yuan"] is undervalued and market sentiment clearly favors appreciation, Treasury concluded that China did not meet the technical requirements for designation under the terms of Section 3004 of the Act during the period under consideration. Treasury was unable to determine that China’s exchange rate policy was carried out for the purpose of preventing effective balance of payments adjustment or gaining unfair competitive advantage in international trade.

The Administration position was expressed by Treasury Secretary Henry Paulson, when he said this week that the best way to get China to move faster on currency reform was "through direct discussions and negotiations, not through legislation."

For many years, the Chinese yuan was pegged to the U.S. dollar, which means that you could always convert dollars to yuans at the same rate, year after year. This was true although the dollar was "falling" internationally, meaning that you would convert dollars to fewer euros or yen.

The fixed conversion rate with the yuan also meant that when the Fed drastically reduced interest rates to near-zero in the early 2000s, the interest rate in China was effectively also near-zero. The Fed policy headed off and postponed a major Wall Street stock market crash in the early 2000s, but it also poured a lot of cheap money into the economy, creating the credit and real estate bubbles. And since the yuan was pegged to the dollar, the Fed policy also poured enormous amounts of cheap yuans into the Chinese economy, creating huge export, commodities and stock market bubbles in China.

I tied all of this together with macroeconomy theory several months ago in an essay that I wrote on "A conundrum: How increases in 'risk aversion' lead to higher stock prices," based on work by Harvard economist named Robert J. Barro. Briefly, the people in the generations that survive the previous crash (in this case, the 1929 crash) become extremely risk-averse, and refuse credit. As those generations disappear (retire or die), the younger generations become risk-seeking, and increasingly use debt and credit abusively. The abusive use of credit actually increases the total amount of money in circulation, so that money is poured into BOTH stocks and bonds, so that they both participate in the bubble. This is what's been happening in both the U.S. and China. At a time like this, there's so much money (liquidity) is available, that people are willing to invest in almost anything.

China has put all its extra liquidity into building manufacturing businesses, and have been manufacturing products that it exports to other countries, especially the US. Americans have used all the extra liquidity to purchase Chinese exports. In a sense, this has been beneficial for both countries, but it's created an enormous trade imbalance.

So the situation is pretty bad, and Congress is going to make it worse. Congress is demanding the People's Bank of China (PBoC) essentially raise interest rates sharply. If the Fed did that in the US, there would be at least a huge recession. In China, the result would be a bursting of all bubbles, and a financial meltdown.

But logic doesn't have anything to do with what Congress does these days.

The level of xenophobia has been increasing steadily in the Congress, as people look for ways to punish both Latinos and Chinese, while the Bush administration pushes for more moderate positions and negotiations.

And this is not Democrats versus Republicans. The Immigration Bill has split both parties, with the xenophobic side favoring deporting illegal Mexican immigrants back to Mexico, and the accomodative side looking for ways to give them a legal status. Which side a particular politician is on probably depends on how many Latinos he has in his district.

But there's NO such split on xenoophobia against Chinese. It seems that almost everyone in Congress hates the Chinese and wants to turn the screws, even if it means hurting Americans as well. It's what my mother used to refer to as "cutting off your nose to spite your face."

When I wrote my book, Generational Dynamics: Forecasting America's Destiny, I never really understood how Congress could have passed the Smoot-Hawley Tariff Act in June 1930. The law was opposed by the Hoover administration and by numerous economists. But it was several months after the 1929 stock market crash, and Americans were blaming high unemployment on foreigners stealing jobs away from Americans. The Smoot-Hawley act didn't didn't help the American economy, but it crippled imports from other countries, especially silk from Japan. Japan was already suffering economically anyway, but this act shut down silk industry. It infuriated the Japanese, who invaded Manchuria and China in subsequent years, and bombed Pearl Harbor a few years after that.

Now, to my amazement, I'm seeing exactly the same thing happen. The Bush Administration opposes this punitive bill, preferring negotiation, and economists are saying that it won't help the US economy at all, and will invite retaliation. But Congress is going ahead with it anyway, and if passes despite President Bush's veto, the Chinese will be humiliated and infuriated.

Plus ça change, plus c'est la même chose.

Treasury Bonds, Mortgage Rates and Greenspan

Alan Greenspan, speaking in Hong Kong last week. <font face=Arial size=-2>(Source:</font>
Alan Greenspan, speaking in Hong Kong last week. (Source:

Alan Greenspan got into the act again last week, with regard to the issue of Treasury bills (bonds).

The subject of long-term Treasury bonds is much in the investor news these days, because interest rates have increased dramatically.

In the past several weeks, yields (interest rates) on 10-year Treasury bonds have gone from under 4½% to over 5¼% -- that's a ¾% change, with no interest rate changes by the Fed.

And since mortgage interest rates are pegged to the 10-year treasury bond rate, it means that mortgage interest rates have gone up ¾% as well. It's a very striking development, and could signal that something fundamental is changing.

Let's have a brief review here: Treasury bills are sold by the Treasury to borrow money. They're sold at an auction so that anyone can bid on them. The Treasury hopes to get as much money as possible for them, so they hope that purchases will bid a lot.

No matter how much a bidder pays for a treasury bill, it always pays the same amount back after 10 years. That means that the more you pay for a treasury bill, the lower the effective interest rate (yield) is, and the less you pay, the higher the yield is.

Now, yields have gone up sharply in the last few weeks. That means that prices of Treasury bills have gone down. That means that bidders have been willing to pay less and less to purchase these bonds from the US government. Or, to put it another way, bidders are demanding much higher interest rates to loan money to the US Treasury. Some analysts are predicting 10-year yields may go up as high as 6½%.

This increase in long-term interest rates is a really big deal. The whole global economy in the last few years has been based on easy credit. It's easy credit that caused the real estate bubble, the subprime mortgage debacle, the stock market bubble, the Chinese economy bubble, and all the other bubbles we've been living with. Such a large interest rate increase could affect not only the US economy but also the world economy.

Why would interest rates increase like that? One online blogger blamed it on the mortgage foreclosure surge, but that would be the tail wagging the dog -- the mortgage market is too small to have caused this kind of change.

If 10-year yields are increasing rapidly, then it can only be because very large investors are bidding sharply lower prices on 10-year bonds -- and those very large investors would be countries like Japan or China.

China has been purchasing huge volumes of 10-year US Treasury bills so that we would have enough money to purchase their huge volume of manufactured exports. Other countries with high savings rates, especially Japan, have done the same. The spiking of yields indicates that someone is cutting back on purchases of US Treasury Bills.

This brings us to Alan Greenspan's comment. Greenspan suggested that China and other countries are so that there's less money available to purchase US Treasuries. "What we're now beginning to see is affluence spread throughout what we used to call the `Third World,' and consumption is beginning" to increase, he said.

China has hundreds of billions of dollars in US Treasuries in its central bank, and there's some concern that they might try to sell some of them. This would create an oversupply of bonds, pushing down prices, forcing a further sharp rise in interest rates.

According to Greenspan, there little reason to fear this. "There's no evidence at this stage that China is selling off securities." His reason? China would not have anyone to sell the securities to.

That's a pretty weak reason, and we can see why by returning to the subject of this essay: The anti-China xenophobia in Congress.

The proposed punitive law would humiliate and infuriate the Chinese, and invite retaliation. From their point of view, they've been funding America's buying spree, and is America greatful? Noooo. America is passing hostile protectionist laws. That's how China would look at it.

One step they could take is simply to dump their hundreds of billions of dollars of Treasury bills on the market. Even if there were no buyers, the market would be so depressed that prices would collapse and interest rates would up into the double-digit range. China's intent would be to retaliate and cause a recession in the US. Of course such a move might do a lot more -- trigger an investor panic and a worldwide financial crisis.

At any rate, you may recall that I've advised people to take their money out of stocks, and keep it as cash, or else invest in short-term (6-12 month) Treasury bills, paying roughly 5¼% interest at the present time.

I strongly recommend against investing in long-term Treasury bills. Why? Because of the scenario I just described.

From the point of view of Generational Dynamics, we're now overdue for a generational panic and financial crisis. It could happen next week, next month or next year, but it's coming with certainty. The event triggering such a panic might be anything, but the recent sharp rise in long-term yields and mortgage interest rates certainly raises a lot of possibilities. (18-Jun-07) Permanent Link
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Abbas dissolves the Palestinian Authority as Hamas overpowers Fatah in Gaza

There are now effectively two Palestinian Authorities, one in Gaza governed by Hamas, and one in the West Bank governed by Fatah.

Some of the West's worst fears appear to be coming true, as the terrorist group Hamas appears ready to establish a Sunni Sharia state in Gaza, with links to al-Qaeda through the Muslim Brotherhood in Egypt.

The jubilant Hamas warriors completely outfought the Fatah security forces, and handed Palestinian Authority president Mahmoud Abbas a humiliating defeat.

Egypt is said to be trying to mediate a new compromise of some sort, but that seems unlikely to change things.

I've done many generational analyses of the Mideast, starting in 2003, when I wrote that the death of Yasser Arafat would be part of a significant generational change that would lead the Mideast into a major new war between Arabs and Jews, replaying the genocidal war of the late 1940s.

Last year, in an article called "Interviews with young Gazans spotlight road to war," and in 2005, in "Palestinian 'Old Guard' giving way to 'Young Guard'" I showed how you can break down the Palestinian generations: The "Old Guard," consisting of Palestinian leaders, including Arafat and Abbas, who founded the Palestinian Authority after the 1940s war; the "Hamas generation," born after the 1940s war with no memory of its horrors, and contemptuous of the Old Guard for allowing Israel to get away with so much; and the "Young Guard," the young militants now in complete charge of Gaza, who are rapidly taking matters into their own hands.

If I could be philosophical for a moment, I know that many readers of this web site feel everything from skepticism to amazement.

At the time that I wrote the 2003 article referenced above, I was still pretty skeptical myself. That was my first real predictive article, and I was pretty unsure of what I was doing, but I wanted to get it posted so that if it turned out to be right I would be able to point to a track record of predictions.

Today, my skepticism is long past, but my amazement still remains. I had hoped to have some success in determining general trends, but it still astonishes me that each and every Generational Dynamics trend prediction has either come true or is coming true. Not a single one has been wrong. Six years ago I would have believed that any such result was absolutely impossible, and the fact it's working still amazes me probably more than any reader of this web site.

The other thing that amazes me is that the politicians and journalists are so ignorant of all this. When I first posted that prediction in 2003, no one was talking like that at all, and there were a number of people who actually called me crazy.

Today, the same ignorance prevails. I watched BBC World earlier this evening, and I'm watching CNN International right now, and these people still have NO IDEA what's going to happen. They STILL think that things in Gaza will settle down or, at worst, there'll be a small civil war that'll soon blow over, and then the so-called "peace process" can begin again.

When I say that readers of this web site are the only people who know what's going on in the world, you may think I'm just bragging a little, and maybe I am. But it's also true. People just REFUSE to believe what's coming. This is the ONLY web site in the world that correctly predicts and explains everything going on in the world.

There's another oddity going on. I know from my web log that there are probably a few thousand regular readers of this web site, yet this web site is almost never mentioned in other blogs and web sites. I know of people who read this web site who simply don't want to talk about it. Period.

I'm beginning to think of this web site as being similar to a pornographic web site -- there are a lot of people reading it, but they don't want to admit it.

There's another lesson to be learned from the situation in Gaza. The Generational Dynamics prediction is, and always was, that the Arabs and Jews will be have a new genocidal crisis war, replaying the genocidal war of the late 1940s. Generational Dynamics gives you the final destination, but doesn't tell you that path or scenario that you'll take to get there.

So now we're seeing the scenario unfolding before our eyes. Who would have thought that the Palestinians would have an internal war, splitting themselves into two groups, led by Hamas and Fatah, respectively, one in Gaza, one in the West Bank? Of course we still don't know the next steps -- how this will turn into a war between Palestinian and Jews -- but we're obviously building up to that point.

Can anything be done to stop this? No. It is a basic, core principle of generational theory, as originally developed in the 1980s and early 1990s by William Strauss and Neil Howe, that no politician can have any predictable effect on what's going to happen.

That's why, for example, arguing about the Iraq war is futile. Future historians may look back at this time and decide that the Iraq war turned out to hurt us, or they may look back and decide that the Iraq war helped us in the Clash of Civilizations world war, but there's no way to know today.

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

I hope that all of you who read this web site are at least preparing for what's coming. Every day, the global financial economy is gets more and more out of control, relations between China and Taiwan get more and more critical and, of course, the situation in the Palestinian territories becomes more and more chaotic and violent.

No one can stop what's coming, but you can prepare for it. As I've said many times: Treasure the time you have left, and use the time to prepare yourself, your family, your community and your nation. (15-Jun-07) Permanent Link
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The al-Askariya Shrine in Samarra, Iraq, is bombed again

Last year's bombing triggered months of vicious sectarian violence in Baghdad, and it appears that the perpetrators of Wednesday's bombing are hoping to do the same again.

The al-Askariya shrine prior to February, 2006.  You can see the golden dome and the two golden minarets. <font size=-2>(Source: BBC)</font>
The al-Askariya shrine prior to February, 2006. You can see the golden dome and the two golden minarets. (Source: BBC)

The Sunni insurgency was actually beginning to diminish at the end of 2005 and the beginning of 2006, when al-Qaeda bombed the Shiite al-Askariya shrine in Samarra in February, 2006. At that time, al-Qaeda in Iraq was headed by Jordanian terrorist Abu Musab al-Zarqawi; he was killed in June of last year.

However, the bombing of the shrine triggered the massive sectarian violence that occurred in Baghdad last year, fooling pundits and politicians into thinking that Iraq was having a civil war.

Iraq is in a generational Awakening era, meaning that it's "attracted away from war." This means that any situation appearing to be leading toward war will be strongly resisted by the Iraqi people, and will soon fizzle out.

Top: The shrine after the February 2006 bombing.  You can see one of the two golden minarets on the left.  Bottom: The shrine today. The two minarets are now completely destroyed. <font size=-2>(Source: BBC and CNN)</font>
Top: The shrine after the February 2006 bombing. You can see one of the two golden minarets on the left. Bottom: The shrine today. The two minarets are now completely destroyed. (Source: BBC and CNN)

And that's exactly what's happened. As I wrote a few months ago, the Iraqi Sunnis are turning against al-Qaeda in Iraq, who are actually foreign invaders. This is exactly what you'd expect during an Awakening era.

The new bombing of the al-Askariya shrine appears to be an act of desperation by al-Qaeda in Iraq, hoping to trigger a new surge in sectarian violence. However, Shia Grand Ayatollah Ali al-Sistani and Shia cleric Moqtada al-Sadr both called for calm today, naming al-Qaeda as the perpetrators. Al-Sadr also blamed the "American occupiers."

But there's no universal agreement that al-Qaeda was the perpetrator this time. The issue this time is that the shrine was being guarded by 150 officers in the Iraqi police force.

In a lengthy discussion between two Iraqi government officials on the BBC early Wednesday, the Shia official said that it was certain that the perpetrators were al-Qaeda and former Sunni Baathists.

However, the Sunni official claimed that it was more likely that Iran was the perpetrator. He asked, "Who benefited most from the insurgency in the last year?", and he answered his question by saying that the Shia militias, funded and armed by Iran, were benefited the most. He suggested, therefore, that it was the Shia militias controlled by Iran that perpetrated Wednesday's bombing.

At any rate, it's clear that Wednesday's bombing was an "inside job," involving some cooperation with the Iraqi police.

On June 13, 2007, (1) Hamas claimed to be taking control of Gaza; (2) Fatah increasingly retaliated on the West Bank; (3) a car bomb killed an anti-Syrian lawmaker in Beirut; and (4) the Shia al-Askariya shrine in Samarra was bombed again.
On June 13, 2007, (1) Hamas claimed to be taking control of Gaza; (2) Fatah increasingly retaliated on the West Bank; (3) a car bomb killed an anti-Syrian lawmaker in Beirut; and (4) the Shia al-Askariya shrine in Samarra was bombed again.

As we can see from the three stories on Mideast violence that I've posted today, al-Qaeda appears to be making gains. They're being pushed back by Iraqis in Iraq, but it's doubtful that the Americans can ever stop the suicide bombings. In Lebanon, the Fatah al-Islam group has allowed al-Qaeda to gain a foothold there.

In Gaza, Hamas is closely allied with Egypt's radical Muslim Brotherhood, which is increasingly closely linked with al-Qaeda.

Al-Qaeda also remains active across the Mahgred (northern Africa) and across Europe, stretching back to Indonesia in southeast Asia.

However, from the point of view of Generational Dynamics, al-Qaeda is not the greatest threat facing America. Even if al-Qaeda is successful in launching terrorist acts on American soil, as horrible as they are, no more than a few thousand people are likely to be killed.

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 biggest threat to America is the coming Clash of Civilizations world war, which will be fought on multiple fronts -- against China in Asia, in the Mideast, in Europe, possibly Africa, and even with Mexican radicals. Hundreds of thousands of Americans died in World War II, and tens of millions died worldwide, and that will be increased proportionately in the coming war. (This paragraph was corrected on June 14) (14-Jun-07) Permanent Link
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Another Lebanese anti-Syrian politician killed in Beirut blast

The seventh assassination of anti-Syrian politicians in Lebanon occurred on Wednesday when a car bomb killed lawmaker Walid Eido and eleven others.

Lebanon became sharply split in 2005 when beloved former prime minister Rafiq Hariri was killed by a suicide bomber in Beirut. Most Lebanese blamed the killing on Syria, and the Lebanese became polarized into pro-Syria and anti-Syria factions, with the militia group Hizbollah leading the pro-Syria group.

On June 13, 2007, (1) Hamas claimed to be taking control of Gaza; (2) Fatah increasingly retaliated on the West Bank; (3) a car bomb killed an anti-Syrian lawmaker in Beirut; and (4) the Shia al-Askariya shrine in Samarra was bombed again.
On June 13, 2007, (1) Hamas claimed to be taking control of Gaza; (2) Fatah increasingly retaliated on the West Bank; (3) a car bomb killed an anti-Syrian lawmaker in Beirut; and (4) the Shia al-Askariya shrine in Samarra was bombed again.

Since that time Lebanese officials, working with the United Nations, have been trying to get an official inquiry established into the perpetrator of the Hariri killing, specifically to determine whether Syria had arranged it.

Syria has bitterly opposed this inquiry, and is thought to be responsible to responsible for killings.

Lebanon is still facing continued violence in Palestinian refugee companies after the al-Qaeda linked Fatah al-Islam attacked the Nahr al-Bared camp in northern Lebanon last month. (14-Jun-07) Permanent Link
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Hamas presses for control in Gaza, Fatah gets revenge in West Bank

The U.N. is considering deployment of a multinational force in Gaza, as it appears increasingly likely that the terrorist militia group Hamas will soon be in complete control of Gaza.

Young Fatah fighters in the West Bank prepare for revenge against Hamas. <font size=-2>(Source: BBC)</font>
Young Fatah fighters in the West Bank prepare for revenge against Hamas. (Source: BBC)

Fatah's forces in Gaza crumbled quickly under fierce mortar and rocket fire.

In one particularly spectacular move, a Fatah security headquarters building in the southern town of Khan Younis was blown up by a bomb planted in a tunnel beneath the building, dug from a nearby home over a period of months.

There's been violence in Gaza for some time, and one thing that's been concerning analysts is the fear that the violence might jump to the West Bank territory. That's now happening increasingly, as Fatah kidnapped several employees of a Hamas production company.

Analysts are now forseeing the possibility that Hamas will control Gaza and Fatah will control the West Bank. With Hamas in Gaza, Gaza would essentially be a terrorist state, and would prepare to launch an attack against Israel. Before long, Israel, Gaza and the West Bank would all be involved in a bloody war in some scenarios.

Israeli and Palestinian forces have informally asked the United Nations to consider deploying a peacekeeping force in Gaza to prevent any further escalation of violence. U.N. Secretary-General Ban Ki-moon discussed the issue with the Security Council, but no decision was taken.

On June 13, 2007, (1) Hamas claimed to be taking control of Gaza; (2) Fatah increasingly retaliated on the West Bank; (3) a car bomb killed an anti-Syrian lawmaker in Beirut; and (4) the Shia al-Askariya shrine in Samarra was bombed again.
On June 13, 2007, (1) Hamas claimed to be taking control of Gaza; (2) Fatah increasingly retaliated on the West Bank; (3) a car bomb killed an anti-Syrian lawmaker in Beirut; and (4) the Shia al-Askariya shrine in Samarra was bombed again.

Slowly but surely, you can see that my 2003 Generational Dynamics predictions about the Mideast are coming to pass. Each day the all-out genocidal war that was predicted comes closer.

The involvement of a U.N. force would make the situation much more complicated. Suppose there is a U.N. force. Are they just going to stand there and watch people kill each other, as other U.N. forces have done? Are they going to shoot at people under some circumstances? Will they shoot at Fatah people? At Hamas people? At Israeli people? And what if those people shoot back? Does the U.N. then send in a larger force?

As you can see, the path to all-out war is getting clear and clearer.

Pundits are always pretty naïve about what's coming in the Mideast, always predicting the most wildly optimistic option possible -- there'll be a peace plan, a peace process, the next cease-fire will work, etc. (And in the case of Iraq, pundits always predict the most pessimistic option possible. Why is that?)

But Generational Dynamics has always been very clear about what's going to happen to the Israelis and the Palestinians: There's going to be a violent genocidal war between Arabs and Jews, replaying the genocidal war between Arabs and Jews that took place in the 1940s, after Palestine was partitioned and the state of Israel was created. We don't yet know the scenario that will take us to that all-out war, but we're clearly getting closer to it every day. (14-Jun-07) Permanent Link
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Palestinian road to civil war escalates another step

Gunfights escalated to larger military actions in northern Gaza on Monday and Tuesday, as a Hamas-linked militia unilaterally declared "the northern Gaza Strip a closed military zone" under its control. The result is an important victory for Hamas, leading Palestinian President Mahmoud Abbas’ office to accuse Hamas of plotting a coup. Hamas, for its part, has accused Fatah of trying to assasinate the Hamas Prime Minister Ismail Haniyeh.

According to Debka, Hamas threw its entire 15,000-strong Executive Force armed with mortars, RPGs, heavy machine guns and grenades into the bid to conquer the Gaza Strip, whereas Fatah commanders’ desperate appeals to Mahmoud Abbas for reinforcements drew nothing but a futile call for a ceasefire.

Since I started writing about the Arab/Jewish problem in 2003, the Israel/Palestine region has been almost a textbook case for Generational Dynamics analysis. I said that the region would descend again into war, replaying the extremely violent genocidal war between between Arabs and Jews in the late 1940s, following the partitioning of Palestine and the creation of the state of Israel, and that this war probably begin around two years after Yasser Arafat's death. It's now been about 2½ years since Arafat's death, and the Palestine region has gotten measurably worse almost every day since then. It now appears increasingly likely that the scenario leading to a new genocidal war between Arabs and Jews will begin with a Palestinian civil war.

According to BBC, "There's only one rule in Gaza, the rule of the gun. They're tearing Gaza apart in a vicious battle for power which is fueled by calls for revenge."

I listened to various pundits on BBC and CNNI, and they stated their various opinions, each one blaming one or more of the following:

In other words, nobody has the vaguest idea what's going on, or why things don't settle, why the Palestinians don't seem to want a Palestinian state, why the Palestinians are fighting each other, and what to do about it.

Rarely do you hear about a "peace process" anymore. We've had several years of "peace process," but each cease-fire, each compromise, each "unity government," each Palestinian election has just brought increased violence.

None of the pundits made the obvious generational connection.

Not a single pundit mentioned that the average age of the people in the densely populated Gaza Strip is 16, meaning that Gaza is being run by children with guns and missiles.

Some pundits mentioned that militia groups are not being controlled by their Fatah or Hamas leaders, but none connected that to the ages of the people in the militia groups.

You know, you don't have to be a rocket scientist to figure this out. If the Gaza is packed to the gills with people, and if the median age of the people is 16, and if they have plenty of guns and missiles coming in from Egypt, and if the only people they have to listen to are people they hold in contempt, because every attempt to compromise with the Israelis has always brought what they perceive as more intransigience from the Israelis, then why should they do anything other than what they're doing.

There's another thing too. The tiny Gaza String has 1.5 million people packed into it, and the population is growing at 4.7% per year, one of the highest rates in the world. (It's 0.9% per year for the U.S.)

So, let's suppose that, by some miracle, the Palestinians and Israelis agree to a peace plan, and move ahead with a Palestinian state. What happens after that? Where are those 1.5 million people going to go? Poverty is enormous, and there's no room left for much more growth. How long can Gaza keep growing at 4.7% per year before civil war breaks out anyway, or war with the Israelis breaks out anyway? That's the thing that no one thinks of -- "peace" doesn't mean "peace forever"; it just means "peace for now." And it still doesn't preclude war later.

So the demographics of the situation mean that war is coming no matter what happens.

It's also worthwhile making a generational comparison with Iraq, as I've done before.

Gaza is in a generational Crisis era, meaning that it's "attracted toward war." Iraq is in a generational Awakening era, meaning that it's "attracted away from war."

We've seen the situation in Gaza get worse every day, but the situation in Iraq has been getting better.

As I wrote a few months ago, the Iraqi Sunnis are turning against al-Qaeda in Iraq. This is exactly what you'd expect during an Awakening era. Al-Qaeda is an outside group, consisting of terrorists from countries like Saudi Arabia and Jordan, which are in generational Crisis eras. They're bringing war INTO Iraq. The Iraqis cooperated for a while, because they don't like the American "occupiers," but now they've been turning against al-Qaeda in Iraq because, after all, it's killing many Iraqi's and few Americans.

Now the latest news is that the Sunni insurgency is fighting al-Qaeda. According to one Iraqi parliamentarian close to the Sunni insurgency, "We have three enemies. Enemy number one is al-Qaeda, enemy number two is Iran, number three is the Americans."

So we're still number three, but at least we aren't number one.

And Iraqi Shia aren't even on the list. Despite the political hysteria in the U.S., Iraq has never been in a civil war, and never can be, because a crisis civil war is impossible during a generational Awakening era. (It's possible to have a non-crisis civil war, but it always ends quickly in an Awakening era.) That's what it means to say that Iraq is "attracted away from war."

But Gaza is different. Gaza is in a generational Crisis era. In Gaza, the path to civil war is getting worse. The Palestinians are "attracted TO war," not away from war.

I've been doing these Generational Dynamics analyses for over four years. I've written over 700 articles for this web site, most of them containing specific predictions, and all of them are still available for anyone who wishes to go back and read them, to see what I said.

But you can see with your own eyes what's happening. In Gaza, in a Crisis era, the civil war is getting worse; in Iraq, in an Awakening era, any move in the direction of civil war quickly fizzles.

As I've said many times before, I challenge anyone to find any web site or pundit in the world with a better predictive record than this web site. No one has found one because none exists. There is no better predictive methodology than Generational Dynamics.

What I wrote in 2003 is still just as true today: The Palestine region is headed for a new genocidal war between Arabs and Jews, replaying the genocidal war of the late 1940s. This war will pull in other nations from the region, and eventually will pull in the U.S. in support of Israel. It will lead to the Clash of Civilizations world war, if that war hasn't begun previously. We can't predict the exact time frame or the exact path to this result, but the final result is 100% certain. (13-Jun-07) Permanent Link
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Boomers commemorate the 40th anniversary of the Summer of Love.

In many ways, 1967 was the cultural peak of America's Awakening era.

January 14, 1967 - Tens of thousands of young people filled Golden Gate Park for a "Human Be-In." <font face=Arial size=-2>(Source: PBS)</font>
January 14, 1967 - Tens of thousands of young people filled Golden Gate Park for a "Human Be-In." (Source: PBS)

Tens of thousands of young people, including many young teenagers, made their way to San Francisco to fulfill their dreams of freedom. The guys could wear long hair, the girls could wear short dresses; both could wear flowers in their hair. They could listen to rock 'n' roll. They could smoke pot and take LSD. They could be part of the antiwar movement, the civil rights movement, the women's lib movement, the environmental movement. They could become one with nature.

They were the beat generation. They could all be hippies, or beatniks, or anything else they wanted to be.

The antiwar protests had begun in 1965, when 25,000 students marched on Washington. By 1967, more than 400,000 troops had been sent to Vietnam. The kids would change that.

After the Summer of Love, "Flower Power" would rule. They would create a freer nation, socialist instead of capitalist, peaceloving instead of warmongering, where everyone would be equal, and there would be no more war or poverty. They would change the world.

It wasn't just the summer. Kids started pouring into the city in January 1967 for a "Human Be-In." Tens of thousands of them filled the Polo Fields at Golden Gate Park on January 14. a day of rock music, poetry, Buddhist chants.

Former Harvard Professor Timothy Leary asked students to "turn on, tune in and drop out." <font face=Arial size=-2>(Source: PBS)</font>
Former Harvard Professor Timothy Leary asked students to "turn on, tune in and drop out." (Source: PBS)

The intellectual guru and hero was Timothy F. Leary, a former psychology professor at Harvard who had experimented with psychedelic drugs, especially LSD. He administered LSD on an experimental basis, and claimed that people taking it were benefitted, with mystical and spiritual experiences. He was fired from Harvard in 1963, for being absent from classes. In San Francisco, he told the kids to "turn on, tune in and drop out." By this he meant: Use LSD, listen to him, and drop out of school.

The "Human Be-In" got sensational worldwide press coverage. The optimism and idealism brought more tens of thousands of young people to San Francisco for a summer of concerts.

1967 was a breakout year for many, many great bands and albums. The Beatles came out with Sgt. Pepper, although when they admitted to having used LSD, they received mixed reviews for their behavior, if not for their music. Pink Floyd, Jimi Hendrix, Janis Joplin all made a mark. The theme song was "San Francisco," written by John Phillips of the Mamas & the Papas, and sung by Scott McKenzie:

"If you're going to San Francisco
Be sure to wear some flowers in your hair
If you're going to San Francisco
You're gonna meet some gentle people there

For those who come to San Francisco
Summertime will be a love-in there
In the streets of San Francisco
Gentle people with flowers in their hair

All across the nation such a strange vibration
People in motion
There's a whole generation with a new explanation
People in motion people in motion

For those who come to San Francisco
Be sure to wear some flowers in your hair
If you come to San Francisco
Summertime will be a love-in there

If you come to San Francisco
Summertime will be a love-in there."

The song was a worldwide hit, and indeed, flowers were in style around the world as well.

Bored kids in the "Beat Generation" often turned to drugs. <font face=Arial size=-2>(Source: PBS)</font>
Bored kids in the "Beat Generation" often turned to drugs. (Source: PBS)

But the idealism began to wear off. San Francisco really couldn't handle so many young people for so long, and there were "incidents" that got people arrested.

Even worse, many kids without much to do ended up just sitting around smoking pot. Distraught parents, worried about their runaway children, sent photos to San Francisco officials, who posted them around the city. When a runaway teen was identified, the parents were notified to come and get him or her.

By the end of the summer, the Summer of Love was over in more ways than one. San Francisco really wasn't that much fun anymore and, more important, the optimism and idealism had turned for many to desperation, bitterness and disappointment.

Bulletin boards were filled with snapshots of runaway teens sent in by distraught parents. <font face=Arial size=-2>(Source: PBS)</font>
Bulletin boards were filled with snapshots of runaway teens sent in by distraught parents. (Source: PBS)

Within a few years, Timothy Leary had spent time in jail, and Jimi Hendrix and Janis Joplin had died of drug overdoses. The Summer of Love turned into several long, hot summers of violence, as antiwar and other protesters took to the streets.

Still, Boomers today idealize and venerate the Summer of Love as a time when young people came together to make the world a better place.

If you're too young to remember anything about the Summer of Love, you should take a little time to learn more about what happened.

Most of the photos from this article were taken from the the PBS series on the Summer of Love, and you can see the entire series on the PBS web site.

The San Francisco Chronicle has published a five-part series on the Summer of Love, with the title, "1967: The stuff that myths are made of."

And New York City's Whitney Museum is exhibiting music, movies, paintings and sculptures from the era.

I've been saying for five years now that there is no antiwar movement in America today, and that there can't be any antiwar movement in America today, and that college-aged students would never participate in anything resembling a 1960s-style antiwar movement today. As I explained in last year's article, "Why aren't college students protesting against the Iraq war?", college-aged kids aren't protesting against the war because there's no "generation gap" today as there was in the 1960s.

Can you imagine today thousands of teenagers running away from home and heading for a "Summer of Love" somewhere? It's unthinkable today, because teenagers aren't estranged from their parents the way they were in the 1960s.

And remember who those runaway teens were -- none other than the Baby Boomer generation, the generation that now runs the country, including the clown circus Congress.

Those runaway children are now running Congress, still acting like they're on LSD and pot, still hoping that Flower Power will change the world. (12-Jun-07) Permanent Link
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Congress fails to pass "no confidence vote" against Attorney General Alberto Gonzales.

After failing to pass any kind of immigration bill last week, the Washington clown circus Congress failed on Monday in their attempt to pass a "vote of no confidence" in Attorney General Alberto Gonzales.

In fact, one of the reasons that the Democrats wanted to stop talking about the immigration bill is that they wanted to move onto this vote of no confidence. But now that's failed too.

The Democrats don't like Alberto Gonzales because he fired some Democratic prosecutors and replaced them with Republicans -- or something like that -- I could never get up enough interest to even care what was going on. And then Gonzales bungled his explanation to Congress.

So this no-confidence vote is a political stunt to embarass Gonzales and the President. While passing an immigration bill would be an actual accomplishment, it was abandoned in favor of political nonsense, and even the nonsense failed.

The Boomers are running Congress and, as I've said many, many times, Boomers are unable to govern. I hope those of you who think I was joking about that begin to realize that it's the absolute truth. Boomers really are unable to govern.

A web site reader sent me a message indicating that he thinks I'm being too hard on Congress. He writes to me thus:

"In your recent post about the immigration bill and its failing in the Senate, I think what's more telling than any increase in incompetence of government by Boomers is the public's reaction towards the bill. I think it matters not what the Senate was or wasn't able to do, since that is measuring the capabilties of individuals, but rather the large negative response those senators received from the public. Several senators who were asked about the reaction towards the bill by their constiuents have all said they have received more negative responses towards this immigration bill than anything else in a long time. The public is not happy, and I think that is the crux of why the bill failed. The elites, so disconnected from the public, were taken completely by surprise by the level of disapproval over the bill."

I certainly agree with this comment that the public is extremely divided on the immigration bill.

The immigration bill is not a "Democratic" bill or a "Republican" bill. It actually splits both parties down the middle. Both Republican President Bush and Democratic Senator Ted Kennedy strongly favor the bill, and there are plenty of supporters and opponents from both parties.

This is not surprising, since immigration and xenophobia are always issues in every country entering a generational Crisis era, as are all the countries today that fought in World War II as a crisis war. You can see xenophobia between Americans and Latinos, between Europeans and Muslims, and between Japanese and Chinese.

Not only that, but I'll add one more argument in support of the reader's claim. As I've said before, whenever a country enters a generational Crisis era, as is the case of all the countries that fought World War II as a crisis war, then the country always becomes paralyzed and ungovernable. We can see this in America, Israel, the Palestinian territories, Turkey, the UK, and so forth, as I've described before.

In France, incidentally, the new President Nicolas Sarkozy won the first round of legislative elections on Monday, and his party appears poised to win a substantial majority in the Parliament when the final vote is taken on Sunday, June 17. Analysts are predicting that this will give him the power to make all the changes he's promised -- repeal the 35 hour work week, control labor unions, make France the leader in a new united Europe, and so forth.

However, as I wrote last month when he became President, Sarkozy is far more likely to be met with massive violent street protests and other strong opposition if he continues his confrontational approach. In truth, France is just as paralyzed as America is, and chances are that we'll see that pretty shortly.

So perhaps, as the reader suggests, I should be more understanding and forgiving of Congress, and more sensitive to their needs and problems.

Hell no. I disagree that just because they're Boomers, this gives Congress the right to act like a bunch of clowns. We pay these guys the big bucks to find compromises when necessary -- in other words, to govern. We don't pay them to sit around and scream at each other like a bunch of teenage girls.

One tv pundit made an interesting point: The President has an approval rating of about 35% -- and Congress has the same approval rating, and so did the Republican Congress last year.

Americans voted for a change last November, when they voted for a Democratic Congress. Instead, they simply replaced the Republican clowns with the Democratic clowns. I think we deserve better. (12-Jun-07) Permanent Link
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Immigration Bill collapses in Congress

Trent Lott asks, "Can this Congress do ANYTHING?"

As I've been saying for some time now, the country is becoming increasingly ungovernable because more and more Boomers are in leadership positions, and Boomers are only able to argue, not govern.

This was shown on Thursday evening, when the comprehensive "grand bargain" immigration bill was defeated in the Senate.

The NY Times, of course, which becomes less and less credible every day as a source of news, blames the whole thing on Bush's lack of power.

I suppose it's true that Bush lacks power, being a lame duck President and all, but that has nothing to do with why the bill failed in Congress, any more than the weather does.

The heart of the matter was stated by Senator Trent Lott (R-Miss), who said this on Thursday:

"If we can't do this, we ought to vote to dissolve the Congress and go home and wait for the next election. Can we do anything any more?"

I'm sure he was referring to more than just the immigration bill.

When I tell people that Boomers are unable to govern, they smile as if I'm making a joke. But the fact is that the only major things that Congress has done in the last five years are: Authorize the Iraq war; renew the Patriot act; and, just recently, vote more funds for the Iraq war.

As I wrote last month, the Democrats are just as incompetent as the Republicans.

As I've said many times, the survivors of World War II did great things -- they created the United Nations, World Bank, Green Revolution, World Health Organization, International Monetary Fund, and so forth. They created these organizations and managed them for decades with one purpose in mind: That their children and grandchildren would never have to go through anything so horrible as World War II.

Can you imagine Congress today doing anything remotely like those accomplishments?

I was actually beginning to think that the immigration bill had a shot at passing. It was supported by President Bush and Senator Ted Kennedy (D-Mass), and there seemed to a determination in both parties to get the job done.

It reminded me of what happened in the 1980s, when Democrats and Republicans got together and passed a major tax reform law, and then a major Social Security system law, and then rules to control the budget deficit.

The way they did it then was as follows: Since these bills were so contentious, they appointed a small committee of senior Republicans and Democrats to come up with a bill. Once they reached a compromise bill, the bill came to the floor under the following rule: The entire Senate could vote the bill up or down, but individual Senators couldn't make amendments. That was a process that guaranteed that a bill would be passed.

However, there was no such process this time, and the pundits say that the amendments are what killed the bill. The people on the far left and on the far right proposed amendments that sliced away at the support for the bill. In the end, the Senate didn't have to 60 votes to end debate, and so the bill went down.

And so, the existing situation will continue: Mexicans will continue working the U.S. with an illegal status, which is what nobody wanted.

And the difference between the 1980s and now is that in the 1980s the GI Generation and Silent Generation, the survivors of WW II, were in the leadership of Congress. They knew how to govern -- they learned how during and after WW II when the United Nations and all those other agencies were set up.

They understood that you have to make compromises, that you have to give in a little to get something.

But the Boomers were born after WW II, and never learned how to do anything but argue. They don't know how to compromise. They don't know how to apologize. They have no idea how to admit it when they're wrong. And, of course, they don't have any idea how to govern, even though they think they know everything. (And if you're out there gloating because you're a Gen-Xer -- the Xers are worse than the Boomers.)

So once again, Congress was totally incompetent.

As Trent Lott said, "If we can't do this, we ought to vote to dissolve the Congress and go home and wait for the next election." Sounds about right to me, except we'll need these guys around in a few months when the time comes to vote more funds for the Iraq war. (9-Jun-07) Permanent Link
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Morgan Stanley in Europe signals a "Full House" sell signal on stocks.

Saying that stocks could fall by 14% in the next few months, a Morgan Stanley European strategy report says that all three of its major leading indicators -- bond yields, manufacturing forecasts and P/E ratios -- were signalling a market about to lose value.

"Such a full house sell signal across these three indicators is rare, and has occurred only five times since 1980," said analyst Teun Draaisma in a European strategy research report. "Equities have always been down in the next 6 months, on average by 15%."

This forecast actually is consistent with other forecasts that the market is "overdue for a correction," meaning that even the usually exuberant analysts realize that every once in a while a continually rising market has to fall, at least a little.

What none of these forecasts are taking into account is the possibility of a full scale generational stock market panic.

From the point of view of Generational Dynamics, a generational stock market crash is overdue. 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: the 1637 Tulipomania bubble, the South Sea bubble of the 1710s-20s, the bankruptcy of the French monarchy in the 1789, the Panic of 1857, and the 1929 Wall Street crash. We're now overdue for the next one. It could happen next week, next month or next year.

From the point of view of Generational Dynamics, it's easy to prove that a new financial crisis is coming, just by showing that various trend variables -- international account balances, public debt, market capitalization -- are all increasing uncontrollably, with no real attempt being made to stop them. And lately we've seen that the Chinese economy continues to explode out of control, even though Chinese officials have to tried to bring down the huge imbalances for five years and have failed completely. This past week's fall in the Shanghai stock market has alarmed Chinese officials greatly, as they wait to see what's going to happen next.

Wall Street's stock market indices in Thursday all fell 1.5% to 1.8%, and as I write this on Thursday evening (approaching noon Friday in Tokyo), the Tokyo and Hong Kong indices are down 1.6%.

One possible scenario is this: the markets will fall a little further, then level off and start to rise again. I've personally been surprised by how frequently that's happened.

But there's another scenario, and this one must occur at some point in the not to distant future: The markets will fall perhaps 1% or 2% a day for a few days, and then full-scale generational panic will set in, and the markets will fall 20% over a period of just a few days.

No one is expecting this because there hasn't been anything like in our lifetimes -- since 1929. (As I've indicated a number of times, the so-called panic of 1987 was a "false panic," since the market was underpriced at that time. Today, the market is overpriced by a factor of more than 250%, just like 1929.)

I've posted warnings two or three times in the past that such a panic may be close at hand, and the market has recovered each time. However, on each such occasion, the negative signals were stronger than the last time.

In this case, we have the Morgan Stanley "full house" signal, which indicates that many parts of the economy are increasingly in trouble.

But more important, we have increased awareness of the weakness of the Chinese economy, including the March statement by Chinese premier Wen Jiabao said that China is "unsteady, unbalanced, uncoordinated and unsustainable." As I wrote in January, 2005, China is becoming increasingly unstable and approaching a civil war, and the increasing financial instability of China means that this day may be approaching quickly.

Once again I urge all my readers to get out of the stock market, and I'd like to add a little more information in response to a couple of reader questions that I've gotten in the last couple of days.

Let me summarize a few points:

Another web site reader sent me the following reminiscence (slightly modified to disguise the identity):

"Some days I wish this nonsense would end, yet I feel a real fear about what is coming. At times it is very intense and at other times it dissipates almost to nothing. It goes back and forth, round and round. It's almost like being tortured.

See, I can still remember looking into my Grandfather's face when he was old. I'll never forget the real and intense fear I saw in his face as long as I live. My Dad's father, who was 87 (born in 1902) was was getting forgetful and one morning a look of intense fear came over his face and he announced, "I have no money!" He was reliving the Depression. My Dad, a Silent born in 1933, very patiently took all of his bank statements out of the drawer and proceeded to show him how much money he had. A look of relief came over my Grandfather's face and he slumped down into the chair and said "Oh." I should also say that my Dad never talked about that incident. I knew it was too painful for him to talk about. ...

This is a risky time to be living no matter what you do. Those who survive this will be extremely shrewd AND extremely lucky. Nothing is safe, I'm afraid. The best investment will be one that nobody gave a thought to, like pepper during WWII or something like that. I think you and I think too much alike. That article you wrote about religion is the only thing I've ever seen on the subject that articulates most of my philosophy. Unfortunately, it will probably turn a lot of people off. And that "Full House" signal that Morgan Stanley announced ... will only be the beginning. It may be this month. If it is, there will probably be a brief relief period before it gets worse. That would be the best case for everyone, but I'm not so sure it can work that way. The Fed has been withdrawing liquidity for a year but private liquidity is still raging out of control."

This is relevant to our lives today because there are actually a lot of people, especially young people, looking forward to a major financial or war crisis, because they're simply looking for a change, any kind of change. I've had to tell more than one person to be careful what you wish for. The day that the stock market crashes will be the worst day of your life. (8-Jun-07) Permanent Link
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Chinese officials alarmed with fear of stock market panic

Sharp falls in Shanghai and other Chinese stock markets are causing great concern among Chinese officials that the huge stock market bubble that's been building for months is about to burst -- causing widespread money losses among ordinary Chinese people.

Up until Wednesday of last week, Chinese officials were looking for ways to cool down the bubble growth, hoping that it would be deflated slowly and carefully (as if that were possible). On Wednesday, Beijing tripled the tax charged on people buying or selling stocks, hoping that it would slow things down slightly.

Instead, it triggered a sharp fall of 15% in four sessions, the biggest drop being 8.3% in a single day.

The Shanghai stock market has fallen sharply in the last few days.
The Shanghai stock market has fallen sharply in the last few days.

Now the Chinese are trying to reverse themselves, although it isn't clear what they can do. They're considering more "jawboning" (which always works great, of course), and a reduction in last week's tax is also being considered.

Stocks recovered 2.6% on Tuesday, giving everyone a euphoric feeling of relief that another crisis had past, and everything can go on as it was.

From the point of view of Generational Dynamics, the Chinese economy is is out of control and is headed for a major financial crisis, with 100% certainty. This will be triggered by a panic that might occur tomorrow, next week, next year or thereafter, but the situation has gotten so bad it will probably happen sooner rather than later.


I want to say a word to investors who have been "going short."

When you go short on a stock, it means the following: You borrow shares of the stock (from your stock broker) and sell them, keeping the money in an escrow account (held by your stock broker). You agree that in three months, you'll purchase shares of stock at the price at that time, and pay back the loan. If the price of the stocks have gone down in the meantime, then you make money, because you buy stocks at a lower price than you sold them.

This is the opposite of what investors usually do. Usually, you buy stocks today and sell them sell a few months later. If the price of the stocks has gone up, you make money.

Going short means that you sell the stocks today, and buy them back a few months later, so you make money if the price goes down.

Now, what I'm about to say is not a Generational Dynamics prediction; it's only a gut feeling on my part, based on what I've seen happening the last few months, and on Generational Dynamics theory.

The concern is that selling short is going to lose money either way, no matter what happens. Selling short makes sense when you think the market is going down, but it's been increasingly clear the last few months that the market is going to continue going up, for the reasons I've described on my web site: Debauched and abusive use of credit in America, China, India, and other countries around the world and this money gets pumped into the stock market bubble (I mean this as a figure of speech, not literally) and the other bubbles. This is something that didn't happen in 1987 and hasn't happened since 1929.

As long as this process is going on, investors will lose money selling short.

What Generational Dynamics IS predicting is that at some point there'll be a worldwide stock market panic, and a complete loss of confidence among investors.

Bankers will be calling loans, and credit will become unavailable. Interest rates will increase, and there will be a worldwide collapse in liquidity. Stock market bubbles, including the huge Wall Street bubble, will collapse, and stocks will fall sharply and won't recover.

You might think that this is good news for investors who sell short, since they'll make a lot of money, but there's a big problem: The sharp contraction in liquidity will force many bankruptcies, and even escrow accounts will be depleted, depending on how they've been set up.

That means that even investors who went short will lose money all their money in this case as well.

It's not guaranteed that this scenario will occur, but right now it appears to me to be one of the scenarios most likely to occur.

As I described at length several months ago, I continue to believe that the best thing to do is keep cash or short-term (not long-term) treasury bills. This does NOT mean corporate bonds; it does NOT mean mutual funds; it does NOT mean money market funds. All of these funds are, in the end, backed by stocks. I mean either cash or short-term treasury bills. (6-Jun-07) Permanent Link
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Book review review: Christopher Hitchens: "God Is Not Great: How Religion Poisons Everything" (II)

Part II: The role of religion in Generational Dynamics theory.

Part I Part II

In this book review review, Part I looked at the politics issues around Hitchens' book.

In Part II, we become a lot more theoretical. We turn to Generational Dynamics theory, as it looks at religion.

As I discussed in Part I, Christopher Hitchens' justifications that "religion poisons everything" are mostly bizarre, and certainly not logic. In particular, he notes examples of correlation between war and religion and thereby claims that religion causes war without, for some reason, considering that war causes religion.

In fact, it is the Generational Dynamics view that war causes religion, as this essay will demonstrate. But that conclusion will come later.

As we'll show, the reason that "war causes religion" is that religious arguments are used as justification for wars that were going to occur anyway. Obviously, this kind of explanation wouldn't satisfy the religion-haters, like Hitchens, but it also won't satisfy the religious believers. (I was recently discussing religion with a web site reader, when she finally wrote to me, "I think you're dead already." She certainly wasn't too happy.)

What causes war?

Let's start at the beginning. If war causes religion, then what causes war? This question is at the heart of generational theory.

People sometimes write to me accusing me of following some ideology. I always write back asking them to tell me exactly what ideology they believe that I'm following. I'm perfectly happy criticizing airheads on both the right and the left, the neocons as well as the loony left, and so that question is never answered.

These people are mostly disturbed by the Generational Dynamics finding that there MUST be genocidal wars at regular intervals, and that a new world war is coming.

In fact, it's very easy to prove that SOME kind of genocidal war cycle must exist.

In order to understand this, let's put humans aside for the moment, and look at what happens to animals.

In the case of animals, as the population grows, it fills up available land and uses up available food and water resources. The result is that some animals have to die. Generally, animals simply "die quietly" of starvation or disease. In the case of two sub-species competing for the same food and water, the weaker sub-species may simply "die quietly" and become extinct.

But human beings don't "die quietly," because human beings are "intelligent."

All of the above considerations are the same for humans, except for one major one: Humans don't "die quietly." Suppose that you have two ethnic groups, one short and one tall, living together. After the low-hanging fruit has been eaten, the shorter humans will face starvation. Instead of dying quietly, they'll first ask the taller humans to pass down some of the high-hanging fruit. When the high-hanging fruit becomes scarce, and the taller human refuses, the short human doesn't "die quietly." He becomes violent, rather than starve to death. Eventually, the group of shorter humans will get together and wage war against the taller humans, and eventually this will become a genocidal war.

This proves that SOME kind of genocidal war cycle exists. By itself it doesn't provide proof for the rich descriptions of generational turnings archetypes originally developed by William Strauss and Neil Howe, the founding fathers of generational theory, and further developed by Generational Dynamics.

But it does provide a proof that a major part of generational theory, indeed the part that most people viscerally object to, is absolutely true. There MUST be genocidal wars at regular intervals, because population growth always eventually -- in a matter of decades -- exceeds the availability of land and resources.

As I wrote in my my 2004 article on the Green Revolution and the Malthus effect, I estimate that worldwide population has grown at an average of 1.72% per year since World War II, while food production grows at only 0.96% per year. This means that periodic genocidal wars must occur to reduce the population so that there'll be enough food for the survivors.

As we said, animals usually "die quietly" when food, water or other resources aren't available. But some animals do have wars, as described by one of the great antiwar activists in American history. Here's an excerpt from Chapter 12 of Henry David Thoreau's 1840s book, Walden:

"I was witness to events of a less peaceful character. One day when I went out to my wood-pile, or rather my pile of stumps, I observed two large ants, the one red, the other much larger, nearly half an inch long, and black, fiercely contending with one another. Having once got hold they never let go, but struggled and wrestled and rolled on the chips incessantly. Looking farther, I was surprised to find that the chips were covered with such combatants, that it was not a duellum, but a bellum, a war between two races of ants, the red always pitted against the black, and frequently two red ones to one black. The legions of these Myrmidons covered all the hills and vales in my wood-yard, and the ground was already strewn with the dead and dying, both red and black. It was the only battle which I have ever witnessed, the only battle-field I ever trod while the battle was raging; internecine war; the red republicans on the one hand, and the black imperialists on the other. On every side they were engaged in deadly combat, yet without any noise that I could hear, and human soldiers never fought so resolutely. I watched a couple that were fast locked in each other's embraces, in a little sunny valley amid the chips, now at noonday prepared to fight till the sun went down, or life went out. The smaller red champion had fastened himself like a vice to his adversary's front, and through all the tumblings on that field never for an instant ceased to gnaw at one of his feelers near the root, having already caused the other to go by the board; while the stronger black one dashed him from side to side, and, as I saw on looking nearer, had already divested him of several of his members. They fought with more pertinacity than bulldogs. Neither manifested the least disposition to retreat. It was evident that their battle-cry was "Conquer or die."

In the meanwhile there came along a single red ant on the hillside of this valley, evidently full of excitement .... He saw this unequal combat from afar -- for the blacks were nearly twice the size of the red -- he drew near with rapid pace till be stood on his guard within half an inch of the combatants; then, watching his opportunity, he sprang upon the black warrior, and commenced his operations near the root of his right fore leg, leaving the foe to select among his own members; and so there were three united for life, as if a new kind of attraction had been invented which put all other locks and cements to shame.

[[In the following, Thoreau mocks the marching bands that accompany armies going to war. Saying "the less the difference," he means that both wars are equally futile. He's specifically inveighing against the Mexican-American war, which was the Vietnam war of those days.]]

I should not have wondered by this time to find that they had their respective musical bands stationed on some eminent chip, and playing their national airs the while, to excite the slow and cheer the dying combatants. I was myself excited somewhat even as if they had been men. The more you think of it, the less the difference....

[[Now, Thoreau specifically mocks the Revolutionary War, partially triggered by the tea tax and the Boston Tea Party.]]

I have no doubt that it was a principle they fought for, as much as our ancestors, and not to avoid a three-penny tax on their tea; and the results of this battle will be as important and memorable to those whom it concerns as those of the battle of Bunker Hill, at least. ...

I never learned which party was victorious, nor the cause of the war; but I felt for the rest of that day as if I had had my feelings excited and harrowed by witnessing the struggle, the ferocity and carnage, of a human battle before my door."

Thoreau was clearly moved by the war between the black and red ants, but has no idea why the war had to take place. But it's obvious what must have happened: Several weeks earlier, a small black ant nest established itself at one end of the wood pile, and a small red ant nest established itself at the other end. Both populations grew, and soon there wasn't enough vegetation and other food to support both nests. The wood pile was soon too small for both nests to co-exist, and so there was a war of extermination. Only one group could survive; or, if both groups survived, then the population would be so reduced that there would be enough food for everyone. Then all the ants could be happy until the next war.

Note that this situation could mean that there's a genocidal war among the ants every few weeks. The reduced population grows again in both nests, until it becomes necessary to have another war, and the cycle repeats.

So the war had a very important purpose: To decide which group survives, and which group is exterminated, since there wasn't enough food for both of groups. It's as simple as that. Why couldn't Thoreau see that? Beats me.

It's not as if there was any other choice. There simply wasn't enough food for both groups. There HAD to be a genocidal war.

The purpose of World War II

Why don't people understand that World War I, World War II and other major wars have exactly the same purpose? Germany needed "Lebensraum" to expand the German population. Japan was starving economically, and had already conquered Korea and was gaining ground in Manchuria and China. There was no other choice; there HAD to be a genocidal war, because there wasn't enough food in the world to feed everyone.

Today there are, once again, too many people. There are 6.5 billion people in the world, and by my rough estimates, the population would have to be reduced to about 4.5 billion to have the same amount of food per capita as in 1950.

As world population has continued to increase, and since the gains from the 1960s "green revolution" petered out in the 1990s, and as food per capita has been decreasing, the price of food has been increasing dramatically around the world.

Around the world there are "megacities," each containing tens of millions of people with no access to farmland. Families in poverty in those cities often survive by foraging in large garbage dumps for scraps of food left over by people who can afford to buy food. As population continues to increase, this problem of megacities will multiply. These problems have occurred in cycles throughout human history, and have gotten many times worse in the last two centuries because medical discoveries have lowered the infant mortality rate from 40-50% to 1-2%. That's why, for example, the death rate (as percentage of population) was ten times higher in WW II than it was in the Napoleonic wars.

We're approaching the Clash of Civilizations world war, at a time when infant mortality has fallen far, leading to masses of people who are 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.

Many of these megacities are already megaslums around the world, filled with hundreds of millions of people squatting on marginal or toxic land, drinking filthy water filled with excrement, just barely surviving on the garbage left by others.

Here's where you see the real power of terrorists. Terrorist acts can inflame populations, and when you have a huge mass of young men who can't feed their families and have to forage for food in garbage dumps, then they have nothing to lose by spontaneous riots, civil wars, or external wars. At least when you're in an army, you get fed and you get paid with money you can send back to your family.

For example, the effects of explosive population growth is especially clear in China. There are tens of thousands of mass riots every year in China. There are over a hundred million migrant workers, high unemployment, high food prices, high income disparities, and addiction to a bubble economy, unraveling of Mao's social structure and several provinces threatening to secede. Recently, Chinese premier Wen Jiabao said that China is "unsteady, unbalanced, uncoordinated and unsustainable." As I wrote in January, 2005, China is becoming increasingly unstable and approaching a civil war, and a resulting world financial and war crisis.

Incidentally, one of the largest megacities in the world is Mexico City, the capital of Mexico, with some 20 million 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.

Cycles of animal populations

The ant wars that Henry David Thoreau described are not typical of animals; in most cases, there are no such wars, and animals that can't find food simply "die quietly."

However, what is very common among animals is a population cycle. Even in simple cases, where you have a species of animal eating vegetation, you might have a surplus of animals eating all vegetation available. Once there's nothing left, there are mass deaths from starvation, causing near-extinction of the animal. Then the vegetation can grow back, the surviving animals start to eat and reproduce, and the cycle repeats itself. This kind of thing happens with locust populations near the equator, for example.

These kinds of cycles occur frequently among animal populations, as described by University of Connecticut Professor Peter Turchin in his book Complex Population Dynamics.

The population density of lemmings and owls over time <font face=Arial size=-2>(Source: Peter Turchin in <i>Complex Population Dynamics</i>)</font>
The population density of lemmings and owls over time (Source: Peter Turchin in Complex Population Dynamics)

The adjoining graph shows the population density of lemmings and owls in a certain region.

As you can see, the lemmings become almost extinct, but then every four years or so the ground is covered with them (giving rise to the myth that lemmings follow one another off a cliff).

The owls eat the lemmings (among other things). So as the number of lemmings grows, they get eaten by more owls, and the number of owls increases. When all the lemmings get eaten, then the owls die off as well. So the result is a 4-year cycle.

These kinds of cycles, where there are interplays between predator and prey, can cause very complex population cycles.

So it shouldn't be surprising that the population cycle in human beings is also complicated, and in fact it's a lot more complicated than it is in animals.

I receive criticisms of Generational Dynamics all the time, and two that I see a lot of are: "It's too simple" and "It's too complicated."

It IS simple in the sense that it says that population growth leads to genocidal war, as we've been discussing.

But it's also complicated, because Generational Dynamics supplies the details of how this population cycle works, through generational turnings and archetypes and through crisis wars.

So let's now turn to one of these "details": How wars are the cause of religions.

Defining fault lines with religion

Previously we discussed the example of shorter and taller humans. Let's discuss this example further.

Imagine an island in the ocean somewhere with a population of 10,000 horses, one short subspecies and one tall subspecies, with enough vegetation to support a population of 100,000 horses. Well, those are happy horses, with plenty to eat. But suppose the population of horses grows to 100,000. What happens then?

Well, the low-hanging food gets eaten by the all the horses, but when that runs out, and only high-hanging vegetation is left, the short horses starve. Horses aren't like ants, so there won't be a big war. The short horses will simply "die quietly," and in fact the entire short subspecies may very well be extinguished.

But human beings don't "die quietly."

Suppose now we're talking about 10,000 human beings, rather than horses, on an island with enough crops, hunting and fishing to sustain a population of 100,000. And let's suppose that one group of humans is smaller and weaker, and the other group is taller and stronger. What happens when the population of humans grows?

Well, around the population of 50,000 or so, you begin to see shortages of food in some regions. The short, weak humans will begin to be jealous of the tall, strong humans, who seem to have control over everything. The short, weak humans will make a lot of noise and will even perform acts of aggression to get food for their families. The tall, strong humans will alternate between punishing the aggressors one day and promise to provide them with food the next. As the population approaches 100,000, and food becomes very scarce, and some people are dying of starvation, there's a war between the two groups which, presumably, the tall, strong humans win. Either the short, weak group is completely exterminated, or else enough of the population in both groups is killed so that the total population is, say, 30,000, and once again there's enough food for everyone to live on until population grows again, leading to the next genocidal war.

What made the above example easy to describe was the distinction between short, weak humans and tall, strong humans. In real situations, it's usually not that simple.

Sometimes there are two groups with distinct physical differences. In the 1994 Rwanda civil war genocide the Tutsis (victims) were a bit taller than the Hutus (the attackers). In fact, the genocide was triggered by a radio call from a Hutu leader "cut down the tall trees."

The most obvious difference is with skin color. In the Darfur crisis civil war going on today, there is a small skin color difference between the two sides, although it's mostly been erased by decades of intermarriage.

The point is this: When the population becomes so large that a genocidal war becomes a necessity, then there must be a mechanism that permits the choosing of sides. If there's a physical distinction, then that can be used. If there's a language difference, that can be used. If there's a geographical border separating the groups, then that can be used.

But what happens when two sides are homogeneous in appearance? Many civil wars in history have been "brother against brother."

This was true in the American civil war. There were those people unambiguously in the South, and there were those who were unambiguously in the North. People in the border states had to choose sides. "Am I a Northerner or a Southerner?" It was a crucial decision, sometimes leading to "brother against brother" kinds of fights.

(And, given how Christopher Hitchens and his brother Peter get along, as described in Part I, it wouldn't surprise me if they were on opposites of any civil war, should one occur.)

If a genocidal war is coming, each leader has to be able to say what makes his side unique, different from the other side. He has to be able to say, "We're superior to them because we're taller / shorter / darker / lighter / richer / poorer / more moral."

More moral? That's where religion begins to appear. Each side wants to be "right," and has to believe they're "right" in order for a leader to convince his followers to go out and kill people.

One dramatic example occurred in Russia in the late 1600s. There was a power struggle between the Tsar and the Russian Orthodox Church. In 1652, the Patriarch Nikon introduced some changes in rituals, in order to be consistent with the Greek Orthodox Church. The changes in rituals were, to an outsider, incredibly trivial: Make the sign of the cross with two fingers instead of three; sing alleluia twice instead of three times; refer to "the True Lord," instead of just "the Lord," in the Creed; and change the spelling of "Jesus" slightly.

As trivial as these changes were, they met with wide opposition and created a schism in the Church and a secessionist group called the Old Believers. Starting in 1685, persecutions began, resulting in tens of thousands of deaths.

Now here you had two groups of people with the same physical characteristics, living in the same geographical areas, and having the same religion, but engaged in a power struggle between peasants and Tsar. The struggle turned into a war and created a new religious branch as a by-product; it was the existing conflict between the peasants and the Tsar that CAUSED the new variant religion to be created. Incidentally, Old Believer groups continue to exist to this very day.

Many historians, and probably Christopher Hitchens, would claim that it was religion that "caused" this war. One group wanted to make the sign of the cross with two fingers, and one wanted to make it with three fingers, and so they fought a war over that and similar religious differences.

But just reading this last sentence makes you see how unrealistic that view is. You would not have massive persecutions and ten thousand deaths over a simple ritual matter, unless there were something else going on.

From the point of view of Generational Dynamics, religion did NOT cause that war. It was the continuing ancient conflict between Tsar and peasants that was going on anyway that caused the war; the ritual differences, and the resulting creation of a new religious variant, were the RESULT of the conflict, not the cause.

Let's look at some further examples.

The rise of great religions

In my book, Generational Dynamics: Forecasting America's Destiny, I describe how some of the world's great religions came about through generational changes. Here's a brief summary:

This illustrates an important finding of Generational Dynamics: That great ideas are born during Awakening Eras, and they become either established or extinguished during Crisis Eras.

In each of these cases, ask yourself whether religion CAUSED the war, or was a by-product of the conflict.

Did the Romans REALLY attack the Jews because of their religion? If they had been pagans, like the Romans, would they have left that population alone? Or would they have attacked anyway, just because the population was getting too large and unruly?

In the case of the Muslim clan war that began in 656, the clans all had the same religion, so there wasn't a religious difference to fight over. The religious difference was born because of a power struggle between the clans that was going to happen anyway.

The rise of non-religious ideologies

I mentioned in Part I of this review of Christopher Hitchens' book that Generational Dynamics considers non-religious ideologies like Marxism to follow similar patterns as religions.

Marxism was born during the European Awakening era "revolutions of 1848." It was first tried in the Paris Commune of 1871, leading to a violent crisis civil war. Communism was extinguished there.

It was established in Russia in the Bolshevik Revolution of 1917, and in China in Mao Zedong's civil war that began with the Long March in 1934 and climaxed in 1949.

From the point of view of Generational Dynamics, Communism is just another ideology, like religion, used as a justification for a war that was going to occur anyway. In the Bolshevik Revolution, Communism was almost a perfect mirror image of religion, demanding atheism, as opposed to the Russian Orthodox religion of its followers. In China, Communism was Mao's method for distinguishing his followers from those of his enemy, Chiang Kai-Shek.

Communism is no different from Fascism and Naziism, in the sense that they were ideologies spread by leaders who wanted to use the ideologies to become dictators. Each of these ideologies can be thought of as a kind of "reverse religion," with all the good removed, and replaced by more evil. In each case, the ideology was used by a psychotic monster -- Stalin, Mao, Mussolini, Hitler -- to justify the torture and extermination of tens of millions of people.

What I find astonishing is how popular they were and even still are. Fascism was a great "liberal" favorite in the 1930s, since Mussolini "may be a dictator, but he keeps the trains running on time." Communism was extremely popular when I was attending MIT in the People's Republic of Cambridge, Mass., in the 1960s, and it seemed that half of my friends carried the little red booklets, "Thoughts of Chairman Mao" in their back pockets -- even as Mao had slaughtered tens of millions of innocent Chinese peasants in the Great Leap Forward.

I'm not a religious person, but I like religion and I can understand the value that religion fills in people's lives -- providing comfort and support to those who need it, and providing a framework for keeping families close to one another.

But I just can't understand why any intelligent person would adulate Naziism or Fascism or Communism. Even today, I know several people who adulate Communism, despite its repeated failure, and its use as a justification for tens of millions of murders.

"You have to break a few eggs to make an omelet," is what I've been told -- you have to kill a few million people if you want to create a Worker's Paradise. But as we showed in Part I, Communism can only work for small populations; you can use the mathematics of Computation and Complexity theory to prove that it simply collapses as populations get larger. That's why Communist societies in Russia, Cuba, East Germany and North Korea all got stuck in the 1950s, using 1950s products and forbidding any economic innovation. In the end, "laissez-faire capitalism" is not an ideology so much as a mathematical imperative, as populations grow.

And this brings us back to Christopher Hitchens, the believer in Communism, because it's "rational," the rejecter of religion because it's "supernatural" and "irrational." And the only reason Communism hasn't worked is because Trotsky didn't win the civil war in Russia in the 1920s. What faith!

Part I Part II
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Book review review: Christopher Hitchens: "God Is Not Great: How Religion Poisons Everything" (I)

Part I: Is religion really the root of all evil?

Part I Part II

I haven't read Hitchens' book, though I've read the first chapter online, and I've read some reviews and some interviews with Hitchens. So this isn't precisely a book review; call it a book review review.

Most important, this review gives me an opportunity to write about the role of religion in Generational Dynamics. Here, Part I starts with the Hitchens' view of religion in politics, which contrasts sharply with the Generational Dynamics view. Later, Part II develops a purely theoretic view of the role of religion in human development, and contrasts it with Hitchens' and others' theories.

I'm not a religious person. To paraphrase what a college friend once told me, God has never seen fit to bless me with faith. (The implication, in case you don't get it, is that if I don't have faith in God, then it's God's fault, not mine.)

But I've never been a religious hater either. Some of my best friends, as the saying goes, have been Jews, Christians, Muslims, Buddhists, Hindus, atheists, and so forth. And I respect them for having religion as a framework for understanding the world they have to live in. I know that most of them must be wrong (since these religions all contradict one another, so at most one of them could be correct), but I know that I've been wrong from time to time too. (Rarely, of course.)

But I look at other things as "religions" too. Communism is a religion, albeit one that rejects God. There are political religions as well: "Pro-abortion" and "pro-life" are examples. So are "Conservatism" and "Liberalism." Once again, I know that most of them must be wrong, since they contradict one another. But they provide a framework for getting through the day, and that's good.

I disagree with religious scholars who claim that you have to be religious to have a philosophy of "right" and "wrong." You don't have to be religious to believe that "Thou shalt not murder" is correct. Or that it has exceptions -- for self-defense or in war, for example. And since most people are wrong about religion (since at most one religion can be correct), it follows that most people, most societies and nations, figured out "Thou shalt not murder" without having to resort to a conversation with God.

I became turned off by religion in my youth. My devoutly religious mother took me to church every Sunday, and at times put me into "Sunday school." It wasn't until years later, looking back, that I figured out why I was so uncomfortable with that dynamic: I didn't speak Greek, so when I was in the Sunday school class, I forced all the others to speak English, which they hated to be forced to do. And I didn't really understand a whole lot of what was going on anyway, so the entire thing was pretty unpleasant all around.

Still, in college I became fascinated by religion, and studied it assiduously in college, especially after I fell in with a gang of fundamentalist Christians, who spoke of nothing else. As an MIT student, I was fortunate for two years to be able to sit in on the classes of Religions of the East and West given by Professor Huston Smith, probably the greatest religious scholar in the world. His classes were both inspiring and fascinating. I also spent hundreds of hours studying the Bible Correspondence Course of Herbert W. Armstrong. Because of those and other studies, I became far more knowledgeable about religion than most "religious" people, just as I've studied countries around the world for this web site, and enormously shocked and surprised to learn that I now know more about history and current events than almost all of the politicians, journalists and "experts" in Washington.

Christopher and Peter

I mention all this to explain why I greatly respect Christopher Hitchens for his scholarly, reasoned approach. He is one of the very few in Washington who are not total morons. Unlike almost everyone in Washington, he actually takes the trouble to learn about something, whether it's religion or Iraq, before he goes on TV or writes a book.

I have elsewhere on this web site speculated on the reasons why I'm able to develop this web site and the Generational Dynamics theory, when so few other people can. One of the reasons is that I'm not religious but I like religion. Most people who like religion are religious, and most people who aren't religious hate religion. Being not religious and liking religion appears to be a fairly unique quality, and although I've discussed religion with many people over the years, right now I really can't remember anyone besides myself who is not religious but likes religion.

Christopher Hitchens, left; his brother, Peter Hitchens, on the right.
Christopher Hitchens, left; his brother, Peter Hitchens, on the right.

Certainly Christopher Hitchens doesn't fit that category. Hitchens hates religion. Hitchens REALLY hates religion. His hatred of religion seems to come out of his pores.

This can be understood from an article by Christopher's brother Peter, in which he reviews the book, and bluntly explains what's wrong what's wrong with Christopher. He describes their upbringing:

"Because my father was in the Navy, we were brought up in a very old-fashioned Britain. ... Our boarding-school education, mainly on the edge of Dartmoor, took place in conditions closer by far to the Thirties than to now.

Our ancestry, so far as I have been able to dig it up, is a volatile mixture. On my father’s side, fierce West Country nonconformists mixed with gentle, rather saintly Hampshire Anglicans. One grandfather was a pioneer of the National Union of Teachers and a straggler from the First World War, saved from the trenches by being sent to India.

Well into the Sixties his house was a museum of the world before 1939: no telephone, no TV, but a quietly singing kettle always on the hob and a mangle in the porch, and he refused to read fiction because he thought it immoral.

As for the other grandfather, I have yet to track him down, and we were always told he was "killed in the war", which is true in the sense that he was run over by a bus in the blackout."

This provides a very interesting generational insight. Both Peter and Christopher are in the rebellious Boomer generation, and they both rebelled strongly against their father and grandfather. However, they rebelled in completely different ways: Christopher "of the Left," Peter "of the Right." Christopher is "for" the Iraq war, Peter is "against" it. Christopher is an "atheist," Peter is a "believer."

What could be more typical of Boomers? They can't do anything but argue. They argue with their parents, they argue with each other. Each one is in the center of the universe, and his words are the Golden Words of Truth, even when they change their minds. This is a completely stereotypical case.

View of Religion

Although I greatly respect Christopher Hitchens for his scholarly, reasoned approach, his years of study and scholarship have taken him to a place that make no sense at all with regard to religion. And the sub-title of his book, "How religion poisons everything," epitomizes his total misunderstanding of the role of religion in human life.

He makes his argument by pointing to examples where, he believes, religion does harm or advocates harm:

Now, arguing against religion by means of a series of specific examples like this makes absolutely no sense at all. Maybe religion is still "right" overall, but those specific examples expose details where human beings have erred in detailing religious beliefs. You could even argue that the top levels of the religious hierachy in some religion are corrupt, without being able to logically conclude that individual believers are necessarily corrupt or that they don't do good.

For example, the 9/11 terrorists have been criticized, even by many Muslims, as violating Islam, and that Osama bin Laden is corrupt. The Archbishop of Canterbury may have simply been trying to comfort people anxious about nuclear war. Maybe religion is right, but hell still doesn't exist. Maybe the acts of child abuse are all individual errors.

And as for "sexual repression," what aspect of human life is more complex than that? Does Hitchens really think that "Thou shalt not commit adultery" would not be accepted as a general rule for morality if it weren't for religion? Just ask any man or woman how they feel about their spouses committing adultery, and you have your answer.

But Hitchens knows this. But he's not arguing against religion, for whose falsehood is a given to him. He's arguing against belief in religion. The subtitle of his book is, "How Religion Poisons Everything." But what he's really arguing is that "Belief in religion poisons everything."

Positives and negatives

But even here his argument makes no sense. Belief in religion may have had its problems, but it's also had its positives, and probably more positives than negatives. Belief in religion provides a social framework through which the people of a society can love and understand one another, and help and comfort one another in times of distress. The Archbishop of Canterbury wasn't trying to prepare people for the afterlife; he was trying to comfort living people in fear of nuclear war. "Thou shalt not commit adultery" is not a means of inflicting sexual repression on people; it's a way of providing a cultural norm that increases harmony and reduces conflict. And the fact that some people use religion to urge war is more than offset by the fact that most people use religion to urge peace.

The logical flaw in Hitchens' argument is that he considers all irrational thought to be based in religion, and that without religion, thought becomes rational. He says, "I consider all religions equally fallacious, because they all involve a surrender to faith." Well, aren't many non-religious political beliefs also a surrender to faith? Isn't the acceptance of ANY ideology a surrender to faith?

Feminism and Communism

Actually, Christopher Hitchens and I have one major experience in common: We both used to like President Clinton until it became clear that he was a violent serial rapist. Hitchens turned against Clinton when this became clear in 1999, and was viciously attacked for it.

Here's how he describes the situation:

"And that’s -- and I have letters from some of those -- several of those women, thanking me for doing it; women -- two of whom had been brutally raped by the President, I might add.

This is not nothing. And I ask you to think about it for a second. The feminist movement didn’t care there was a rapist in the Oval Office? The women’s movement didn’t mind there was a serial abuser, someone who was always hitting on the help, in the Oval Office? They didn’t mind this?

Well, I don’t think I’m being too judgmental in saying, well, I do. I’m not going to have a rapist as President. It’s not brave at all to come out and say that. It would just be cowardly not to do it; let’s be clear. It was sickening to find that friends of mine were involved in covering up for this psychopath."

And yet, millions of feminists, who claim that this it's outrageous to even question the sincerity of a woman who says she's a rape victim, automatically condemn Clinton's accusers as lying. The recent collapse of the Duke University rape case by a prosecutor who knew (or should have known) for a certainty that the young white male students were innocent and the black woman accuser was a liar shows that it's feminists who care least of all about women who are raped. As I discussed at the time, feminism is a vast, wealthy, criminal enterprise, headed by Emily's List, the richest, wealthiest and most powerful political group in the country. Feminist groups adopt policies that increase the rape and abuse of women and children because they make money from such cases. They ignore rape accusations against wealthy supporters like Clinton, and bring false charges against innocent males who can't defend themselves. This is corruption at its highest.

A criminal organization like Emily's List requires for its success a large army of women who are so blinded to the feminist propaganda that they walk in lockstep with and obedience to the criminal enterprise and its money-generating machine, without even a whimper of protest about the people, especially millions of children, whose lives are being destroyed.

Now, why doesn't Hitchens call feminism a "religion"? It certainly embodies all the negative characteristics that Hitchens criticizes in a religion, including blind belief supported by faith, but it isn't "supernatural" enough for Hitchens to call it a religion.

You can understand why he's so insistent on this point when you realize that Hitchens spent many early years of his life promoting socialism and Communism, and believes that Communism would have been successful in Russia if only Trotsky, instead of Stalin, had won the Russian civil war in the 1920s.

Does Hitchens consider Communism to be a religion?

Well no, says Hitchens: Marxism was "designed as it was to be the negation of faith." He adds, "I would say, to declare oneself a Marxist in any sense at all is to say, No, it’s not a religion; it is defined as a non-belief in the supernatural and as a repudiation of anything could be called a faith."

And yet, in the year 2007, we can confidently say that Marxism has never worked. It led to massive bloodshed in the Paris Commune of 1871; in the Bolshevik Revolution of 1917; in Stalin's genocide of the Ukranians in the 1930s; in the Chinese Civil War of the 1930s-40s; in the Mao Zedong's "Great Leap Forward" in the late 1950s.

If religion "poisons everything," and is the CAUSE of all kinds of wars and repression, then surely the tens and perhaps hundreds of millions of deaths CAUSED by Marxism is even worse.

Furthermore Marxism has NEVER worked. You can blame the Catholic, Protestant, Orthodox, Muslim, Jewish, Hindu, Buddhist, Confucian and other religions for whatever wars or tortures you want, but each of them can at least point to centuries of time when those religions were a boon to mankind, providing comfort and support to those who need it, and providing a framework keeping families close to one another. Marxism has never even survived more than a few decades, and always has been a bloody disaster.

So, for Hitchens and other apologists for Marxism and socialism to claim that Russian Communism would have succeeded if only Trotsky had beaten Stalin has got to be a conclusion that can only be reached by the wildest of irrational faiths. And yet, here's the man decrying irrational religious thought, pursuing the most irrational non-religious thought.

From the point of view of Generational Dynamics, socialism and communism can't survive for long anyway. It's easy to prove, using the mathematics of Computation and Complexity Theory, that controlled, regulated economies only work for relatively small populations. As the population grows, the number of "regulators" grows exponentially faster than the population, and so either the government regulates less or it collapses. So, for example, if only 0.5% of the population is needed as regulators for 10,000 people, then 1% may be needed to perform the same amount of regulation for 100,000 people, and 2% for a million people, and so forth.

That's why Communist societies in Russia, Cuba, East Germany and North Korea all got stuck in the 1950s, using 1950s products and forbidding any economic innovation: their communist governments didn't have enough people to manage the economic changes. In the end, "laissez-faire capitalism" is not an ideology so much as a mathematic imperative, as populations grow.

And so, we have Hitchens, who vigorously rejects religion as being poisonous, irrational thought based on faith then accepting Marxism, which is even more poisonous and irrational, and even mathematically impossible.

Hitchens never seems able to reach the obvious insight: Religion doesn't cause wars; it's wars that cause religion. Religion serves as a justification for wars that were going to happen anyway. In that sense, religion is like other ideologies.

But we'll get to all that in Part II of this essay.

Part I Part II
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