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


Web Log - May, 2008


South Africa will create "temporary shelters" for migrants, not "refugee camps"

Tribal differences are reasserting themselves and destabilizing the country.

Xenophobic violence against immigrants, originating in last week in Alexandria, a suburb of the capital city Johannesburg, has spread east into the Zulu heartland of Durban and west into Cape Town since then. Dozens of immigrants have been killed, and hundreds of have been wounded. At first, refugees from Zimbabwe were particularly targeted, but now any foreigner is targeted.

"It's war I tell you; it's South Africa versus Maputo [capital of Mozambique]," says a 20-year-old South African who roams around shanty towns seeking foreigners. "We just ask them Zulu words that any South African knows. If they get it wrong, we hit them."

Tens of thousands of immigrants have been forced to flee for their lives from their homes and businesses, often with no time to collect their belongings before their homes and businesses are looted and destroyed. The immigrants collect outside of police stations and armed forces bases as protection. The violence and looting are generally perpetrated by young South Africans from the Zulu and Xhosa tribes.

With immigrants seeking refuge at police stations, stadiums, community centers, and other public buildings, South Africa's government is facing a classic refugee crisis.

South Africa's refugee crisis

South Africa's slogan is "Proudly South African," pointedly proclaiming that the country is a melting pot of many ethnic groups, but that ethnicity no longer matters. It's the same melting pot concept that the United States has historically held.

Thus, the refugee crisis is not just a problem of violence, it's a blow to South Africa's entire self-image.

On Wednesday, the BBC reported plans for seven refugee centers across the country, taking up to 70,000 refugees. International aid agencies reacted quickly, saying that South Africa didn't have the expertise to run large refugee centers.

The SA government issued a quick denial. Putting tens of thousands of black refugees into large fenced-in areas not only violates the "Proudly South African" melting pot self-image, but even brings back memories of Apartheid, when white governments did similar things.

A statement issued by the government said in part, "Government has noted with concern media reports that cabinet has taken a decision to establish refugee camps. Government wish to put it on the record that cabinet has not taken such a decision and that the reports are baseless and therefore not true."

According to a statement by another official, "We are not setting up refugee camps ... it is shelter for those who have been displaced. Typically, refugee centres are long term, we are really looking for a solution for the short-term." Thus, the government is planning smaller short-term shelters.

And this is where South African officials are making an error -- they're assuming that this is a short term problem. They're assuming that the people perpetrating the violence will get tired of it, and that the violence will die off.

One article compares the violence in South Africa today with the "xenophobic violence" on Detroit streets in 1968, where businesses and homes were looted and burned. The national guard and federal troops were brought in, and there were several dozen deaths and hundreds of injuries. The rioting ended within a few weeks, leading to the assumption, by comparative history, that the violence in South Africa today will end in a few weeks. This assumption is wrong.

1968 was the height of America's generational Awakening era. Violence during an Awakening era is typically political in nature, and fizzles after a while. That's what happened in Detroit in 1968.

South Africa today is in a generational Crisis era, 63 years after the end of World War II. Xenophobia has been increasing in countries around the world, especially between China and the West, and between Christians and Muslims. So it shouldn't be surprising that it's increasing in South Africa.

What typically happens in crisis eras is that violence increases in spurts separated by pauses. Each new spurt is usually triggered by some unpleasant shock or surprise, and is usually more genocidal than the previous spurt.

There seems to be little doubt that things have gotten significantly worse in South Africa than in even the recent past. One web site reader pointed out to me, "We have very high violent crime levels here in South Africa and as a result there has been high levels of white emigration over the last 10 years. Half a million South Africans live in London alone! So I tend to see the current violence against foreigners as part of the overall ongoing violence."

And yet there are three significant differences between the recent violence and previous violence:

The fact that the nature of South Africa's violence has changed only recently is described by one reporter, based on his years of experiences:

"I only realised how serious the attacks were when I saw a photograph of a man being burnt alive in a township east of Johannesburg.

Having worked as a photographer in South Africa for more than 10 years, I was no stranger to violence: I had seen angry people chanting slogans, blocking roads and destroying property.

But burning a man alive was evil and barbaric, a flashback to the worst violence under apartheid when opponents of the white minority government were shot and tortured by police and informers were "necklaced" with burning tyres.

That photograph of the burnt man was not mine, but in the following days I came face-to-face with this new brutality as attacks on immigrants spread across Johannesburg and to other cities. ... I've covered violence before but this was bad. I was disappointed that my countrymen had turned against their brothers and sisters from countries that had helped us during apartheid."

This is typical of the progression of violence that occurs during generational Crisis periods. What triggered the most recent change?

The following is my guess as to the shock that triggered the change from "ordinary" violence to the current explosive violence:

For years, the government has been promising the poor Zulu and Xhosa groups a better life -- better homes, better jobs, and end to poverty. And the government has failed to deliver. Then the Zimbabwe crisis occurred, resulting in a huge influx of millions of Zimbabwe refugees. They were welcomed warmly by the South African government, and to the Zulus and Xhosa, it may have seemed that the Zimbabwe refugees were being treated better than they (the Zulus and Xhosa) were.

Add to that the fact that SA's president Thabo Mbeki refused to criticize his old pal Zimbabwe president Robert Mugabe, even though Mugabe had single-handedly destroyed his country. In the logic of genocide, all of this meant that either "they must die or we'll die."

The point is that the violence is not going to just fizzle and die off, as many people are expecting and hoping. There may be pauses and truces, but it's very unlikely that the "short-term" refugee shelters are going to disappear.

Brief generational history of South Africa

[Note: This is a rewrite of the similar section in my previous article on South Africa. I am indebted to a web site reader from South Africa for providing a great deal of relevant historical information, and correcting several historical errors in my previous account.]

Southern Africa, showing colonial names in red
Southern Africa, showing colonial names in red

South Africa has several different generational timelines, based on ethnic groups:

On May 10, 1910, the Union of South Africa was created from the Cape Colony, Natalia, Transvaal, and Orange Free State. South Africa became an active part of the world community, and with the Afrikaner and tribal (Zulu and Xhosa) timelines merging into common generational Awakening and Unraveling eras, there were sharp political divisions along racial lines. Both the Zulus and the Afrikaners became extremely nationalistic, leading to the segregationist Apartheid policy.

All of these different timelines merged in World War II. Different political factions wished to side with the British or with the Germans, or stay neutral. But since South Africa was part of the British empire, it fought on the side of the Allies. South Africa's fighting troops were all whites, but blacks served in non-fighting roles like drivers and guard duties.

The end of Apartheid

The Apartheid policy came into full force after the war, and received worldwide condemnation until it was finally dismantled in 1994.

It was Afrikaner FW De Klerk who is credited with taking the steps that brought apartheid to an end. After being elected president in 1989, he released hundreds of black political prisoners from prison, including the charismatic Nelson Mandela. Working together, De Klerk and Mandela dismanted apartheid, and the two won the Nobel peace prize in 1994, the year in which Mandela and the ANC won the presidency in the newly democratic country.

In a recent interview, De Klerk gave a very interesting answer to the hypothetical question of whether another president could have ended Apartheid 15-20 earlier than De Klerk did:

"I think that hypothetical question really is hypothetical. I don't think any leader of the National Party could have scrapped Apartheid even 15 years [before I did]. Because I sincerely believe that we benefited from a window of opportunity which was opened when the Berlin Wall came down, and when international expansion of Communism imploded. Until that time, there was a real threat. Until that time, the ANC wasn't just a liberation movement. It was in partnership with the USSR. There were hundreds of thousands of Cuban troops in southern Africa, and in that sense there was great truth in the fact that South Africa was the target of expansionist Soviet Communism.

When that feel away, it helped me to take a quantum leap. Rather than to abolish Apartheid step by step, rather than to negotiate on the basis of giving a little bit here, giving a little bit here, stretching it out, I could make that 180 degree turn. So it's really a hypothetical questions."

The fact is that a number of Awakening climaxes occurred in this same time frame -- the end of Apartheid, the fall of the Berlin wall in 1989, the Tiananmen Square massacre in 1989, the 1988 massacre of demonstrating monks in Burma. De Klerk claims that the fall of the Berlin Wall is linked to the end of Apartheid. Are all of these linked together in some way? Generational theorists ought to research this subject, in the same way that historians research the connections between the different battles of World War II.

The end of Apartheid did not come easily. A particular problem was a war between Mandela's Xhosa and the Zulus, led at that time by Mangosuthu Buthelezi.

Today, 63 years after the end of World War II, South Africa is well into a generational Crisis era. Old tribal hatreds left over from Mfecane, something that occurred 180 years ago, are reasserting themselves.

African National Congress politics

The African National Congress (ANC), founded in 1912, was the leading political force that brought about the end of Apartheid. As a political party, it's won every election since Apartheid ended in 1994.

During South Africa's Awakening and Unraveling eras, in the 1960s-80s, almost all blacks throughout southern Africa were united in the common goal of ending Apartheid, and the end of Apartheid represents a significant Awakening climax. (In America's recent history, the 1974 resignation of President Richard Nixon represents an Awakening climax. For China, the 1989 Tiananmen Square massacre was an Awakening climax.)

Since 1994, however, those alliances have been under strain.

The ANC hero, Nelson Mandela, a Xhosa, became the first president of the new democracy. The current president is Mandela's hand-picked successor, Thabo Mbeki, another Xhosa.

The ANC was left sharply divided in December 2007, when Mbeki lost a bruising battle for ANC leadership with a Zulu, Jacob Zuma, the successor to Mangosuthu Buthelezi. Not only did Zuma win the ANC presidency, but his preferred candidates for senior ANC positions beat Mbeki's preferred candidates, all by the same margin, about 60% to 40%.

What we're seeing here is the kind of pattern that's occurring around the world, as governments of countries that fought in World War II as crisis wars become increasingly paralyzed by internal bickering.

In the United States, bickering has paralyzed Congress for three years, as I've described several times on this web site.

Within America's Democratic Party the internal strife has been increasingly bitter. Since the 1970s, the Democratic Party has supported the "politically correct" view on issues like "racial equality" and "gender equality," among others. These two issues represent major blocs competing for money and power. As long as there was plenty of power and money to be had, the two blocs could cooperate. But now that there's less money and power to be had, these two blocs are becoming bitter enemies, as the Democratic party realigns itself. And the bitterness will only get worse.

The same kind of thing is happening in South Africa, as the Zulu and Xhosa power blocs that were united during Apartheid are now jockeying against each other for power.

One bizarre symbol of all this is the Zulu song "Umshini Wami," or, "Bring me my Machinegun." This was a solidarity song that originally appeared during the 1960s, sung among groups fighting against apartheid.

The "politically correct" view is that this song is no longer appropriate, since apartheid has ended, and so there's no longer anyone to fight against. And yet, it's become the victory song of Jacob Zuma and his power bloc, and it's also become a Zulu anthem, in a country where tribal differences are supposed to have disappeared. Here's a video of Zuma singing this song, complete with gyrating hips, at his victory speech in December.

It gets even more bizarre when you realize that "Umshini Wami" actually surfaced much earlier -- in February, 2006, during the trial of Jacob Zuma on charges of rape. It turns out that the Zulu words "Umshini Wami" mean just "Bring me my Machine," and the "machine" that was a machine gun during the anti-apartheid struggle now had an entirely different phallic significance during the rape trial. The rape charges were dismissed, but Zuma is widely condemned because he admitted to knowing that the woman had HIV/Aids when they had consensual sex, but insisted it was OK because he took a shower after having sex.

"Umshini Wami" was heard being sung last week by Zulus bashing migrants near Johannesburg, which Zuma has strongly condemned.

"Umshini Wami" has also been heard at corruption trials of Zuma. Zuma faces another corruption trial in a few months, but he's also considered the favorite to be elected President in the next elections, less than a year away. So we can expect to hear a great deal of "Umshini Wami" in the next year.

As a reaction, the Afrikaners are popularizing their new song, "De la Rey," telling the tale of Afrikaner general De la Rey during the Boer war that ended in 1902. The British won that war, but De la Rey inflicted a serious defeat on the British in one battle. Here's a music video of the song. The words are in Afrikaans, but at least you can make out the words "De la Rey," sung over and over.

The future of South Africa

Those who expect South Africa to return to "normal" in the next few months are going to be disappointed. South Africa has clearly entered a generational Crisis era, and what we've seen recently indicates that the country is becoming increasingly unstable.

Politically, the ANC is expected to win the next election, but that could be derailed. The bickering of the old folks -- Mbeki and Zuma -- is vulnerable to attack by a younger candidate. Just as rock star Barack Obama has promised American voters "Change you can believe in," without having the vaguest clue what that change will be, a young new South African candidate could promise to unite the country and end poverty, even though such promises could never be kept.

Beyond politics, the anti-migrant violence has crossed a line from which South Africa will not return. The gory violence by Zulus and Xhosa directed at migrants may have pauses, but it will only return in worse form. Whether it will lead to some kind of full-fledged civil war cannot be predicted.

One issue that cannot be overlooked is the strategic importance of the southern African cape, including the Cape of Good Hope. As we approach the Clash of Civilizations world war, South Africans are going to play an important role, whether they want to or not. The country's slogan is "Proudly South African," but this slogan may have a completely different meaning before all this is over. It's hard to see any future for South Africa that does not contain enormous turmoil. (31-May-2008) Permanent Link
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Taiwan / China relations thaw in wake of election and earthquake

Taiwan's new President reiterated the "three noes" in his inauguration speech last week.

When Ma Ying-jeou and his Nationalist Party (KMT) overwhelmingly won the Taiwan presidency in March, it was with the "pro-China" campaign promise to reduce tensions with Beijing and to improve business ties.

At that time, worldwide attitudes towards China were bad and getting worse. The crackdown on Tibet had started, and Europeans would soon be using the words "horrible Chinese thugs" to refer to Chinese guards protecting the Olympic torch.

However, worldwide sympathy for the Chinese people following the horrible Sichuan earthquake devastation began a period of international good will directed at China. The good will was bolstered by China's uncharacteristic openness in dealing with the crisis. Human rights demonstrations directed at the Chinese that were so prevalent around the world a month ago have now all but disappeared.

In this atmosphere, relations between China and Taiwan have improved enormously, and last week's inauguration speech by Taiwan's new president Ma Ying-jeou has been greeted warmly by Beijing's leaders.

The following excerpts from Ma Ying-jeou's inauguration speech describe Taiwan's relationship with China:

"On the day of Taiwan's presidential election, hundreds of millions of ethnic Chinese worldwide watched the ballot count on TV and the Internet. Taiwan is the sole ethnic Chinese society to complete a second democratic turnover of power. Ethnic Chinese communities around the world have laid their hopes on this crucial political experiment. By succeeding, we can make unparalleled contributions to the democratic development of all ethnic Chinese communities. This responsibility is ours to fulfill. ...

As President of the Republic of China, my most solemn duty is to safeguard the Constitution. ...

Taiwan has to be a respectable member of the global village. Dignity, autonomy, pragmatism and flexibility should be Taiwan's guiding principles when developing foreign relations. As a world citizen, the Republic of China will accept its responsibilities in promoting free trade, nonproliferation, anti-global warming measures, counter-terrorism, humanitarian aid, and other global commons. ...

I sincerely hope that the two sides of the Taiwan Strait can seize this historic opportunity to achieve peace and co-prosperity. Under the principle of "no unification, no independence and no use of force," as Taiwan's mainstream public opinion holds it, and under the framework of the ROC Constitution, we will maintain the status quo in the Taiwan Strait. In 1992, the two sides reached a consensus on "one China, respective interpretations." Many rounds of negotiation were then completed, spurring the development of cross-strait relations. I want to reiterate that, based on the "1992 Consensus," negotiations should resume at the earliest time possible. As proposed in the Boao Forum on April 12 of this year, let's "face reality, pioneer a new future, shelve controversies and pursue a win-win solution." This will allow us to strike a balance as each pursues its own interests. The normalization of economic and cultural relations is the first step to a win-win solution. Accordingly, we are ready to resume consultations. It is our expectation that, with the start of direct charter flights on weekends and the arrival of mainland tourists in early July this year, we will launch a new era of cross-strait relations.

We will also enter consultations with mainland China over Taiwan's international space and a possible cross-strait peace accord. Taiwan doesn't just want security and prosperity. It wants dignity. Only when Taiwan is no longer being isolated in the international arena can cross-strait relations move forward with confidence. We have taken note that Mr. Hu Jintao has recently spoken on cross-strait relations three times: first, in a conversation of March 26 with U.S. President George W. Bush on the "1992 Consensus;" second, in his proposed "four continuations" on April 12 at the Boao Forum; and third, on April 29 when he called for "building mutual trust, shelving controversies, finding commonalities despite differences, and creating together a win-win solution" across the Taiwan Strait. His views are very much in line with our own. Here I would like to call upon the two sides to pursue reconciliation and truce in both cross-strait and international arenas. We should help and respect each other in international organizations and activities. In light of our common Chinese heritage, people on both sides should do their utmost to jointly contribute to the international community without engaging in vicious competition and the waste of resources. I firmly believe that Taiwan and mainland China are open-minded enough to find a way to attain peace and co-prosperity.

The Republic of China was reborn on Taiwan. During my presidency, we will celebrate the 100th anniversary of the founding of the Republic of China. This democratic republic, the very first in Asia, spent a short 38 years on the Chinese mainland, but has spent nearly 60 years in Taiwan. During these last six decades, the destinies of the Republic of China and Taiwan have been closely intertwined. Together, the two have experienced times good and bad. On the jagged path toward democracy, the ROC has made great strides. Dr. Sun Yat-sen's dream for a constitutional democracy was not realized on the Chinese mainland, but today it has taken root, blossomed and borne fruit in Taiwan."

Note the following points about Ma's speech:

Despite the fact that western media outlets are saying that there's a new policy of détente between China and Taiwan, it's very difficult to find any official Chinese commentary on the new Taiwanese president. The Chinese Foreign Ministry web site is completely silent on the subject. There's very little on Xinhua's China Daily web site or China View web site.

And that illustrates the point -- there are few people who believe that anything has seriously changed.

Ma couldn't have gone any farther in accommodating China because there's a large and growing population of Taiwanese who consider themselves to be "Taiwanese, not Chinese." This population has been growing larger and larger as young Taiwan-born generations replace older generations that fled from the mainland in 1949.

And Chinese officials won't go any farther in accommodating Taiwan because "for China, one INCH of the territory is more valuable than the LIVES of our people." With 1.5 billion people, people are a commodity to China, while territory is invaluable.

In fact, pro-independence academics in Taiwan say that Beijing was not impressed at all by Ma's speech. According to one expert, "What Beijing wants is for Ma to clarify what he means by ‘no unification,’ since unification with Taiwan has always been and will remain the top priority for the Chinese Communist Party."

They add that Beijing will no longer keep up pretenses once the Beijing Olympic games end in August.

This is the view of a lot of people, including this writer.

The Dalai Lama said last week that he's received information from a "military source" in Tibet that Beijing has plans to flood the Tibet region with ethnic Han Chinese once the Olympics games have ended. He indicated that construction plans have already begun. This is an uncomfirmed rumor at the present time.

From the point of view of Generational Dynamics, Taiwan and China are headed for war with 100% probability. The current situation of temporary good will is interesting, but it's like November in New York City -- just because there's a heat wave doesn't mean that winter isn't coming. (28-May-2008) Permanent Link
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Decoration Day

Go forth ye brave and gallant men ...

Decoration Day parade, 1875, Ames, Iowa
Decoration Day parade, 1875, Ames, Iowa

Decoration Day

Go forth ye brave and gallant men,
    Ye patriotic noble band,
Who shouldered arms and risked your lives
    To save from foes our noble land.
Comrades that fell in that defence,
    That in their graves now silent lie;
Their gallant deeds and honored names,
    In patriot hearts will never die.
God has decked our land with flowers,
    On heroes' graves should now be spread;
By living patriot hands that are,
    Should be scattered o'er the dead.
Ne'er was wrote on history's page
    More gallant deeds by heroes brave,
Who fought and bled in freedom's cause,
    Our land and liberties to save.
Their deeds will still in memory live,
    While time shall last or country stand,
And men are found truthful and brave,
    And heaven smiles on freedom's land.
May peace reign o'er our happy land,
    While nations live and time shall be,
And God be honored by all men,
    Loved and adored on land and sea.

-- Frederick B. Hill.

Poets and Poetry of Kansas
Edited by Thomas W. Herringshaw
(Chicago: American Publishers' Association. 1894)

Note: Memorial Day, originally called Decoration Day, is a day of remembrance for those who have died in our nation's service. Decoration Day was officially proclaimed on May 5th, 1868, by President Ulysses Grant, to honor and decorate with flowers the graves of fallen soldiers during the Civil War. Later on, this holiday came to include fallen soldiers from any war. (26-May-2008) Permanent Link
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Teen "emo subculture" creating violent fault line in Mexico City

The depressive 'emotive' music style is also being blamed for suicides in Europe.

In the Broadway play The Music Man, the parents of an 1890s Iowa town learn that pool is an evil game and that, because of the new pool table in town, "Libertine men and Scarlet women and Rag-time, shameless music [will] grab your son and your daughter in the arms of a jungle animal instinct!"

When I was growing up in the fifties, I read in the newspaper that experts were saying that "Superman" comics, my favorite, were evil and were causing kids to turn to a life of crime. That's when I first began to realize that most "experts" are nuts.

After that it was rock 'n' roll that was evil, then 1970s TV crime shows like Kojak, then porn, then video games. Last year, it was the TV show '24'.

From the point of view of Generational Dynamics, these cultural artifacts are not causes of anything; rather, they're signposts, showing the direction in which the culture or a group within the culture is moving.

And so today, when we have European adults calling "emo" music the work of the devil, and when we have groups of emo youths being beaten and killed in Mexico City, it appears worthwhile to study the "emo" phenomenon for what it tells us is happening in some teen subcultures.

Emo band My Chemical Romance
Emo band My Chemical Romance

Emo music has been around since the 1980s. Its adherents describe it as "emotive," and it's a subculture embodying a certain type of music, a characteristically dark style of dress, and a totally non-violent non-political attitude, not opposed to anything. Slit wrists, claims of self-harm and suicide threats are characteristic of some descriptions of this subculture.

Although emo music has been around since the early 1980s, it's only become a phenomenon since 2002 with the emo band My Chemical Romance (MCR) and their debut album I Brought You My Bullets You Brought Me Your Love. No, I'm not joking. And here are the lyrics to the song, "This is the best day ever":

    And we can run, from the backdrop of these gears and scalpels
    At every hour goes the tick-tock bang of monitors as
    They stared us down when we met in the emergency room
    And in our beds, I could hear you breathe
           with help from cold machines
    Every hour, on the hour, they drew blood
    Well I felt I couldn't take, another day inside this place
    From silent dreams we never wake, and in this promise that we'll make
    Starless eyes for heaven's sake, but I hear you anyway
    Well I thought I heard you
    Say I like you, we can get out
    We don't have to stay, stay inside this place
    Someday, this day, we kept falling down
    Someday, this day, set the ferris wheel ablaze
    You left my heart an open wound
    And I love you for
    This day, someday we kept falling down
    One day, this day all we had to keep us safe
    And if we never sleep again, it would never end
    Well I thought I heard you say to me
    We'll go so far, far as we can
    And I just can't stay, one day we'll run away

MCR's most popular counterculture statement came in 2006 with their album, "Welcome to the Black Parade," where the Black Parade is the place you go when you die. Some of the lyrics are: "And we will send you reeling from decimated dreams. Your misery and hate will kill us all. So paint it black and take it back."

Hannah Bond

The "emo" subculture has burst into the consciousness of many Europeans recently, thanks to the suicide in Kent, England, of Hannah Bond, a 13-year-old emo fan, last September.

Hannah Bond, before and after adopting emo lifestyle <font face=Arial size=-2>(Source: Daily Mail)</font>
Hannah Bond, before and after adopting emo lifestyle (Source: Daily Mail)

In an article titled "Why no child is safe from the sinister cult of emo," we learn that the number of children admitted to hospital due to injuries inflicted on themselves has risen from 11,891 in 2002-3 to 15,955 in 2006-7. In both periods, there were more than three times as many admissions of girls as of boys.

The above picture shows Hannah Bond both before and after adopting the emo style of dress. In typical emo fashion, she's dyed her hair black, allowing it to cover one eye, she wears black makeup and black clothes, and she wears bracelets, presumably to cover up the self-inflicted slits in her wrists.

It's easy enough to understand that emo music doesn't cause teenage girls to commit suicide, but that it attracts teenage girls who are already attracted to thoughts of suicide.

The questions that I can't answer are these: Are emo fans really more likely to commit suicide than non-emo fans? (I suspect not.) Are emo fans who slit their wrists really trying to kill themselves, or are they just using it as a way to get attention or shock their parents? (I suspect the latter.) Did Hannah Bond really intend to go all the way and actually die, or was she only trying to shock her parents with an attempted suicide? (We'll never know.)

Development of emo

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In my article several months ago, "The nihilism and self-destructiveness of Generation X," I quoted the lyrics of several Gen-X popular songs, and contrasted them with the music of previous decades -- the romantic escapist music of the Great Depression and World War II eras, the sweet "live, love, laugh and be happy" post-war love ballads, and the protest music of the Awakening era Boomers.

As Gen-X music took hold in the late 1970s and 1980s, the protest music morphed into counterculture "punk rock" music, with dark lyrics mostly rejecting Boomer values, and often emphasizing themes of violence, isolation, disillusionment and death. This was especially apparent in the sub-genre deathrock.

Emo, which originally stood for "emotive hardcore," began in the 1980s as a punk rock sub-genre that stressed emotions and rejected violence. As it's grown, it's adopted the same punk rock themes of isolation, disillusionment and death, but in punk those themes are turned outward in the form of violence, while in emo they're turned inward.

Urban tribes in Mexico City

Here's how a recent BBC report described what's happening Mexico City:

"The clothes, the hair, the look -- emos -- short for "emotional." Young people big on feelings.

Top 3 frames: Emos; bottom frame: Punker. <font face=Arial size=-2>(Source: BBC)</font>
Top 3 frames: Emos; bottom frame: Punker. (Source: BBC)

Young emo teen boy: "Emos let their feelings lead them. We have feelings of emotion, of happiness, sadness, or anger. We're not just depressives like others say."

An idea that started two decades ago in the United States, uniquely this is a worldwide youth movement that doesn't want to change the world. Their mantra instead: Express, don't suppress, your emotions.

Black is the emos' distinctive trademark look -- clothes, makeup, hair -- asymmetric hair -- and usually falling over one eye.

Not punks rallying against an unseen establishment, but young people drawn to a life that puts the individual first.

Now they're standing up for the right to be emotional. [Pictures of emo demonstrations] But this time, it's for self-protection -- from the likes of these -- punks, goths, and rockers, who hate what emos stand for, and the way they stand for it.

Rival tensions between teenagers, yes, but here in Mexico, the animosity is turning violent in city centers across the country.

Look at this -- clashes in one central Mexican town -- this young emo is cornered and beaten. They young man survives, but his attacks run around looking for more emos.

Young teen boy: "I don't like them very much because they [don't] want to look like punks and goths, and those cultures are much more important. Emos have no idea about them."

In other cities, the emos have felt besieged, and here's why: More aggression, more insults, from their jumping, shouting opponents, all questioning what they say is the emos' self-obsession and copycat style.

But in keeping with their passive view on life, emos we spoke to say they're not frightened.

Young teen boy: "We're not aggressive. We do not bother anyone. But people don't understand."

Individuals might not be concerned, but the police have had to deploy hundreds of officers to protect them. With Mexico's history of intolerance against anything strange or different, emo numbers are large here, because there are so many people who feel stifled by the conservative society they live in.

Emos -- the rebels with no cause but their own. Duncan Kennedy, BBC news, in Mexico."

It's always fascinating to hear the always-politically-correct BBC try to explain something, but this stuff doesn't make sense. People don't bash each other's face in because they have different taste in music, or they have different clothes. They do that because of ethnic differences.

And that's evidently what's going on in Mexico. The different groups -- the punks, the goths, etc. -- are calling themselves "urban tribes." Another news account entitled "Mexico Declares War On Emo" describes the situation as follows:

"Chances are if you aren’t emo, you hate emo. But you likely don’t hate this straight-haired, massacre-lined subculture as much as the Mexicans do. In recent weeks, a wave of emo bashings has swept across Mexico, several news agencies have reported, fuelled by punks, rockabillies, goths, metalheads and basically anyone who’s not emo.

According to Daniel Hernandez, who’s been covering the anti-emo riots on his blog Intersections, the violence began March 7, when an estimated 800 young people poured into the Mexican city of Queretaro’s main plaza “hunting” for emo kids to pummel. Then the following weekend similar violence occurred in Mexico City at the Glorieta de Insurgents, a central gathering space for emos. Hernandez also reports that several anti-emo riots have now also spread to various other Mexican cities. Via the Austin American Statesmen, several postings on Mexican social-networking sites, primarily organising spot for these “emo hunts,” have been dug up and translated. One states: “I HATE EMOS!!! They are not even people, they are so stupid, they cry over meaningless things… My school is infested with them, I want to kill them all!”

Another says: “We’ve never seen all the urban tribes unite against one single tribe before… Emos, their way of thinking is for crap, if you are so depressed please do us all a favour and kill yourselves!”

More recent reports state that the emos have begun to fight back against the other “urban tribes” and organised marches in Guadalajara and Mexico City, escalating the violence and leading to increased police presence. Also, some Mexican newspapers, such as El Porvenir, have called for government intervention to protect the emos, writing, “It’s the responsibility of the authorities to make sure the threats aren’t carried out and the aggressions are punished.”

This theme was carried forward in an article subtitled "Mexico City's Urban Tribes Go on the Warpath Against Emos":

"Que Se Mueran Los Emos!" ("That The Emos Should Die!") the "punketos" howled and the bottles began to fly. One young man with an astonishing Mohawk whipped off his studded belt. ...

Halfway up a lamppost as the near-riot unfolded outside the Chopo "tianguis" or bazaar where Mexico City's urban tribes have gathered on Saturday mornings for 28 years, a ten year-old kid flashed a finger and spat on the Emos below cringing behind a phalanx of police and mindlessly chanting their own name--"Emo! Emo!"--over and over again.

Who are these mysterious Emos and why have they been so violently excluded from the ranks of an urban tribalism that knits the city's counter-culture youth into a loose federation of "punketos" (punks, both anarcho and otherwise), "darketos" (darks), "Goticos" (Goths), "skatos" (lovers of ska music), "metaleros" (ditto heavy metal), "ipoperos" (hiphoppers) and "cholos" (gangbangers), amongst other colorful "bandas"? ...

Emos habitat is in comfortable middle and upper middle class neighborhoods like Coyoacan and the Condesa and their musical tastes are one notch above "fresa" (literally "strawberry", a pejorative)--pop punk, post hardcore, and alternative rock. During the altercation outside the Chopo bazaar, several Emos grasped hand-written signs that read "I'm an Emo and so what?" ...

Spread anonymously on the Internet, the anti-Emo putsch soon became national phenomena. 80 anti-Emos were rounded up by police in the northern city of Durango. Anti-Emo demonstrations were staged in the states of Puebla, Jalisco, and Sinaloa. There are reportedly over a hundred anti-Emo videos now posted on YouTube including one entitled "How To Kill An Emo." ...

Underlying the hostilities between the Emos and rival urban tribes is the class divide which yawns wide in Mexico City. The Emos spring from the loins of affluent families and are often enrolled in private schools and the high school system of the National Autonomous University (UNAM) in a country where only 17 per cent of young people will have a chance to go to college."

Mexico's fault lines

I've quoted several different news stories and articles at some length, because I needed all of these sources to figure out what the heck was going on.

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

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

What we infer from all of the sources that we quoted above is that the split between the emos and the "urban tribes" is reopening the fault line between market-dominant European descendants versus the disadvantaged indigenous people.

This fault line has been growing anyway, with increased violent crime from drug cartels, thanks to the increases in the prices of tortillas and other food items. The rise in food prices has sparked numerous demonstrations in Mexico City, as it has around the world, and the attacks on emos are just the latest manifestation.

Generational Dynamics predicts that there'll be a new Mexican Revolution along the European/indigenous fault line, and that it will spread into the southwestern United States.

From the point of view of generational theory, the emo vs urban tribe development is fascinating, since it illustrates how a cultural artifact can be adapted as a tool to separate identity groups. Identity groups are usually separated by things like skin color or language, but the groups themselves may develop cultural differences to further distinguish themselves -- that's how new religions are created, for example. The use of a popular music form to distinguish identity groups shows how versatile human beings are, even (or especially) when they're on the path to total war. (25-May-2008) Permanent Link
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Software development projects for Moody's, Digimarc, Y2K, DEC further illuminate Gen-X nihilism

As Boomers and Gen-Xers have taken charge, software development standards have suffered.

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Yesterday's news that Moody's Investors Service is blaming their ratings errors on the computer, but may well be guilty of fraud anyway, is an archetypical example of a computer disaster caused by the lethal combination of Gen-Xer nihilism and Boomer stupidity. Moody's' computer software was designed by Gen-Xers who "accidentally" allowed certain worthless securities to be given AAA ratings. When this was discovered, upper management did not tell investors; instead, they changed Moody's methodology to match the computer bug, so that the AAA ratings remained, and Moody's could continue to earn fat fees.

Recently, the news was that Digimarc Corp. was sellings its core license ID business to L-1 Identity Solutions.

This news was hardly a surprise to me, because I was working for Digimarc last year, and saw the most incredible thing with my own eyes: How three Gen-Xer employees sabotaged and almost destroyed the software development effort for Digimarc Corp.'s license id business. Their contempt for their own company and its customers was nothing like I'd ever seen before, and it was made possible by the passive cooperation and incredible stupidity of the company's President and upper management.

In 1994, I saw with my own eyes how Boomers were engineering the destruction of Digital Equipment Corp., but that was nothing compared to what I saw last year at Digimarc.

For years I've been describing the disastrous effects of Boomer stupidity and Generation-X nihilism on the financial industry.

These recent news stories have motivated me to start working on an article of things that I've personally seen and been part of: How Boomer stupidity and Generation-X nihilism have caused disasters in corporate IT (information technology) departments and software development efforts.

I've been a computer consultant for almost thirty years, and I've had close to 100 clients, so I've had the opportunity to see for myself how software development standards that were used in the 1970s have been degraded in the 80s, 90s, and 00s, causing huge software disasters. In addition, as one-time Technology Editor and Boston Bureau Chief for InformationWeek Magazine, and part-time Technology Editor for CFO Magazine, I've had the opportunity to report on software development disasters as a computer industry journalist.

In my own experience, I saw a large development project at Northrop Corp. almost fall apart, and a development project at Fidelity Corp. completely fall apart, both because of Boomer stupidity.

In 1994, I saw with my own eyes how Digital Equipment Corp. -- the entire company -- fell apart because of Boomer stupidity.

At another client, I saw a large multi-million dollar internet infrastructure project collapse, because of Gen-X nihilism.

These examples from the IT industry parallel the destruction of the financial industry. The symptoms are always the same: destructive, nihilistic behavior by Generation-Xers, supported and condoned by Boomer managers for their own gain or through their own stupidity.

It's my expectation that Moody's will not survive as a company in anything like its current form, with anything like its current management. Bear Stearns is not going to survive, and I would be surprised if Citibank survived. In the IT field, Digital Equipment Corp. did not survive, and it's highly doubtful that Digimarc will survive.

Israel's Defense Minister Amir Peretz (right) looks through binoculars with the lens cap on. On the left is the army's new Chief of Staff, Lt. Gen. Gabi Ashkenazi. They're reviewing a military drill in the Golan Heights. (Feb 2007) <font face=Arial size=-2>(Source:</font>
Israel's Defense Minister Amir Peretz (right) looks through binoculars with the lens cap on. On the left is the army's new Chief of Staff, Lt. Gen. Gabi Ashkenazi. They're reviewing a military drill in the Golan Heights. (Feb 2007) (Source:

What these managers are exhibiting is what I've been calling "lenscap stupidity." This refers to a February, 2007, photo showing Israeli defense minister Amir Peretz spending a half-hour military briefing looking through binoculars with the lenscap on. How stupid do you have to be to keep looking through binoculars with the lenscap on?

Looking at facts through binoculars with the lenscap on has several advantages. It lets you imagine any facts you want, and ignore any facts you don't like. That's why the 2006 war with Hizbollah was so disastrous for Israel -- what do you expect when the Defense Minister looks at the war through binoculars with the lenscap on?

And that's why Digital Equipment Corp. and Bear Stearns collapsed, and why Citibank and Digimarc are likely to collapse. A company cannot survive, with or without Gen-Xers, when upper management looks at facts through binoculars with the lenscap on.

Even if a company doesn't entirely disappear, there can be huge losses. Bear Stearns had to be saved by the Fed, Moody's faces criminal charges, and Digimarc was forced to sell off its license id business to L-1 Identity Solutions.

In the next month, I'm going to write an article targeted to CFOs, CEOs and CIOs on the degradation of software development standards since the 1970s, and what must be done about it. Here's the conclusion:

The failure to manage Gen-Xer nihilism and and Boomer stupidity is, by far, the greatest risk factor in software development today. Upper management must be aware of this issue, and must manage it, or face additional software disasters.

The successful Y2K project

Something that motivated me to work on that article was a blog comment critical of me and this web site that I accidentally discovered while I was surfing.

This was in a blog entry that appeared in April. In the comment section, one person posted a link to an article on my web site.

Another person, going by the handle "Zebra," posted an extremely contemptuous response. The first paragraph of Zebra's response was as follows:

"The people who are shrieking about the tens of trillions of dollars of derivatives are either stupid of have an agenda. I liken them to the Y2K doomsayers. Yes, there was a code issue that required attention prior to the year 2000. Everyone knew this and knew how to make the required changes. Of course, we know about the horrible catastrophe that occurred on January 1, 2000 (sarcasm off)."

The Y2K problem was a massive software bug that was in trillions of lines of computer code written in the 1970s. Dates were represented in 6 digits: for example, 781023 stood for 1978-10-23. The problem was that millions of computer programs would fail in the year 2000 (Y2K) because 001023 would be interpreted as 1900-10-23, rather than 2000-10-23.

I was heavily involved in Y2K in two different ways: as a software systems developer, and as a technology journalist for InformationWeek Magazine and CFO Magazine. So I was very familiar with Y2K, and it was a huge deal.

This was a problem that was managed by people from the Boomer and Silent generations. It was a HUGE worldwide problem, but it was tackled successfully. Thousands of programmers around the world worked to solve this problem, at a cost of hundreds of billions of dollars. It was one of the greatest technical accomplishments in the history of the world, comparable to the building of the pyramids.

So here we have "Zebra," who obviously knows nothing about the situation, sarcastically referring to "Y2K doomsayers," and criticizing them because no "horrible catastrophe" ever occurred. Well, the reason that no horrible catastrophe ever occurred was because THE Y2K PROJECT WAS SUCCESSFUL!!!!

This illuminates the problem. Like many Gen-Xers, Zebra is very contemptuous of Boomers, and thinks they're full of crap. These Gen-Xers complain that Boomers never accomplish anything. Well, they accomplished the Y2K solution, but Zebra thinks Boomers are still full of crap because there was no "horrible catastrophe."

If Zebra's peers had been in charge at that time, then there WOULD have been a "horrible catastrophe," since people like Zebra are really stupid. Fortunately, the Silents and the Boomers were in charge, and we got the job done.

What this example actually shows is that it's people like Zebra who are full of crap, not Boomers.

That was only part of Zebra's posting. Here's the next paragraph of her message:

"The overwhelming majority of derivatives are used to manage risk. While I agree that Level 3 asset accounting is bizarre and easy to manipulate, value loss events associated with writedowns typically trigger counterparty payments in the nature of a margin call for a borrower against stocks to put the asset values in balance with the associated liabilities according to the contract formula."

Here Zebra shows as much ignorance as she did with respect to the Y2K problem. She uses words like "overwhelming majority" and "typically" to indicate that the problem is very small. What she's incapable of grasping, however, is that there are $700 trillion of credit derivatives around, and if the "overwhelming majority" -- say 90% -- are perfectly OK, then the other 10% are worth $70 trillion, while the GDP of the entire world is only $45 trillion. A collapse of $70 trillion in credit derivatives is an incredible disaster. Even if it's 1% -- or $7 trillion -- then the collapse of that volume of credit derivatives is a worldwide financial crisis.

The next paragraph of her posting was this:

"To read the hysterical rants of some of “the-sky-is-falling” crowd is amusing. I have never found a better barometer of macroeconomic financial condition than the market. It is speaking loudly now that the worst of the credit pinch is over and that the worst of the excesses (particularly subprime residential real estate mortgage lending) have been managed or adequately reserved for (by a combination of asset writedowns and new capital infusions). I am in agreement with those who see a second half recovery, especially in financial stocks."

Zebra is apparently so dumb that she doesn't know that there have been huge stock market crashes in the past, or she wouldn't have said, "I have never found a better barometer of macroeconomic financial condition than the market." Obviously, the market was wrong just prior to the 1929 crash. What could she possibly have been thinking?

Obviously she wasn't thinking, and that's the problem with Gen-Xers when they engage in their favorite sport of hating Boomers.

It's Gen-Xers like Zebra who destroyed companies like Bear Stearns, Citibank and Digimarc.

You know, Boomers are twenty years older than Gen-Xers, on the average, and so have twenty years more experience and wisdom. No one criticizes Boomers more than I do, and it's true that they can't lead or govern and they make up facts. But it's not true that they've done nothing. They've done a lot more than Gen-Xers have done so far -- twenty years worth more.

Nihilistic Gen-Xers have caused a number of disasters in finance and IT. Next year, Gen-Xers in Washington DC may cause disasters in government, comparable to the Pearl Harbor disaster.

And so, I'll quote one more blog comment directed at me:

"Took a very quick look at your web site, less then 3 seconds to be exact and it is clear to me that your main goal for posting all that drivel and you mastery predictive powers is to sell your book. You are in my view one of the snake oil sales men of days gone by. TTFN, I ain't buying that crap."

Well, anyone familiar with this web site knows that I provide it as a public service, for those who wish to prepare for what's coming. I sell about a dozen books at year, pretty much at cost, and anyway, the entire text of the book can be read for free online.

But this is what passes for deep thought among many Gen-Xers. "3 seconds to be exact" -- that's all it took this person to conclude that this Boomer was full of crap.

As I've said before, Boomers are bad, but Gen-Xers are worse. You think that we're full of crap and that you'll be cleaning up after our mistakes, but you'll actually be making one huge blunder after another. Motivated by fury and anger at Boomers for doing nothing, you'll rush in to "do something", and the things you do will be disastrous -- lead to world war, lead to financial disaster. Your generation's utter contempt for everything that came before you, and your recklessly eager willingness to destroy it, will backfire on you and lead you to desperation and self-destruction.

We're already seeing that with the disastrous results of the "financial engineering" that was implemented by Xers under the nose of Boomers, and I've also described it in disastrous software projects in the computer industry. For Gen-Xers who even survive the next 10 years, you'll come out of it bitter and angry. And it won't be the Boomers who'll be blamed or remembered for these disasters. You'll be blamed.

So I'm just going to say to Gen-Xers: Learn to think. If you're reaching decisions in "three seconds, to be exact," then you aren't thinking. Otherwise, you will be the victims of your own disasters. (23-May-2008) Permanent Link
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Moody's blames "the computer" for possible ratings fraud

A formerly undisclosed software bug is responsible for awarding AAA ratings to worthless securities, according to the company.

An investigation conducted by the Financial Times has revealed that:

If these statements can be proved in court, they indicate clear fraud on the part of Moody's.

Moody's issued the following press release in response:

"Moody's recognizes the seriousness of questions raised by today's Financial Times article concerning the analytical models and methodologies used in our European constant-proportion debt obligation (CPDO) ratings process. The integrity of our ratings and rating methodologies is extremely important; as such, when the questions were recently raised to us, we retained the law firm of Sullivan & Cromwell and initiated a thorough external review of our European CPDO ratings process. Upon completion of the review, we will promptly take any appropriate actions.

Moody's rated 44 European CPDO tranches, representing approximately $4 billion in rated securities."

As I've said many times, the circumstantial evidence indicating fraud by banks, ratings agencies, and "monoline" insurance agencies issuing worthless CDOs and CPDOs is obvious: The issuance of CDOs accelerated in 2007, when it was already undeniable that the real estate bubble was bursting, and the AAA ratings clearly couldn't be sustained. And yet, banks continued selling worthless securities, ratings agencies kept rating them AAA in return for fat fees, and "monoline" insurance agencies kept insuring them in return for fat fees.

But this investigation into Moody's Investors Service goes well beyond circumstantial evidence into specific evidence of fraud. My expectation is that there'll be a lot more such investigations, and a lot more fraud discovered. (23-May-2008) Permanent Link
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Loan delinquency rates rose sharply in the first quarter

This applies to residential mortgages, commercial mortgages, and credit cards

The Fed posted its updated statistical release on delinquency rates yesterday. I decided to comment on it because of another illuminating graphic posted by the Calculated Risk blog:

Loan delinquency rates -- first quarter 2008 -- residential mortgages, commercial mortgages, credit cards <font size=-2>(Source: CalculatedRisk)</font>
Loan delinquency rates -- first quarter 2008 -- residential mortgages, commercial mortgages, credit cards (Source: CalculatedRisk)

Looking at this graphic, each of the three subgraphs tells a story of its own:

It's worthwhile emphasizing again -- pundits who say that the worst is over are lying, most likely to cover up their own complicity. All the credible trend evidence points to sharply worse problems in the next year.

Yesterday I received a phone call from a web site reader. He was born in 1960, putting him on the Boomer / Generation-X cusp, but he was strongly influenced by his grandparents. They lived a very affluent lifestyle in the 1920s, and lost everything after the 1929 crash. They warned him what to watch out for and, unlike most other Boomers and Gen-Xers, he actually took their advice, and is now in a good position financially, and is fully prepared to survive the coming financial disaster. I wish there were more people like him.

He agreed with my descriptions of Boomer stupidity and Gen-Xer nihilism -- how Gen-Xers perpetrated all the fraud that we're seeing, but Boomers are just as much to blame because they allowed the fraud to occur for their own benefit. The current world financial situation is the result of the lethal combination of Boomers being unable to govern or lead, and Gen-Xers having total contempt for anything that came before them, and a nihilistic desire to completely destroy it.

The Calculated Risk article quotes some commentary from Goldman Sachs chief economist Jan Hatzius: Mortgage Credit Deterioration: Broadening and Picking Up Speed:

"The Fed’s first-quarter report on loan performance at commercial banks shows mortgage credit quality deteriorating at an accelerating pace. ...

The rapid pace of deterioration is particularly significant because the mortgage holdings of commercial banks appear to be tilted toward higher-quality loans, with more prime and less subprime. ...

The Fed data suggest that mortgage credit performance outside the subprime sector is deteriorating rapidly. This reinforces our long-standing view that the surge in mortgage defaults is much broader than simply a reflection of poor underwriting standards in specific subprime vintages. We don’t doubt that lax underwriting standards were an important issue. But the main driver of the defaults is the decline in home prices, the increase in negative equity positions, and the resulting inability of borrowers who encounter financial stress to sell or refinance their way out of trouble. Although subprime borrowers are more likely to encounter financial stress than prime borrowers—and the share of negative-equity borrowers who will end up defaulting is therefore much higher in the subprime sector—the qualitative outlook for the trajectory of credit losses in the much larger prime market is not all that different."

This Goldman Sachs opinion makes it clear that the worst is yet to come. The only thing missing from this opinion is the usual mainstream failure to explain that this situation arose because of the stupidity of Boomers and the nihilism and destructiveness of Gen-Xers.

I've estimated that the probability of a major financial crisis (generational stock market panic and crash) in any given week from now on is about 3%. The probability of a crisis some time in the next 52 weeks is 75%, according to this estimate. (22-May-2008) Permanent Link
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Oil prices are increasing by the minute

On Thursday, oil went from $129 per barrel to $135 per barrel.

It went from $134 to $135 in half an hour on Thursday evening in Asian trading (Friday morning).

This is manic behavior by speculators.

Stein's Law: If something cannot go on forever, then it won't.

(Stein's law was formulated, in various wordings, by the late economist Herb Stein.)

Something "different" is going to happen soon. (22-May-2008) Permanent Link
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Now it's South Africa's turn: ethnic violence spreads through Johannesburg

Mobs of mostly Zulu South Africans have attacked, raped and slaughtered mostly Zimbabweans during several days of violence, mostly in the poorer parts of Johannesburg and suburbs.

Foreigners from Mozambique and Malawi have been targeted as well, but foreigners from Zimbabwe have been special targets because up to 3 million have fled the violence by Zimbabwe's president Robert Mugabe. The refugees fleeing Mugabe have been mostly from the Ndebele tribe, and the Zulu and Ndebele have had long-standing enmities since the massive Mfecane regional war in the 1820s. (Paragraph corrected - 21-May)

Update: The violence appears to be spreading into the Zulu heartland. Migrant workers in Durban, mostly from Zimbabwe, are being attacked. (Paragraph added - 21-May)

However, the current situation has been exacerbated by the worldwide meteoric rise in food and energy prices, which has increased poverty substantially around the world in a very short period of time.

The violence has been extremely brutal. Mobs armed with knives, clubs and jugs of gasoline torched shacks and beat migrant workers in Johannesburg squatter camps. At least 22 people have been killed. Hundreds have been wounded or raped.

This violence is extremely embarassing to African leaders, especially in view of the ongoing war in Darfur, and the recent violence in Kenya and Zimbabwe, because the violence feeds into the view of some people that Africans are more violent and uncivilized than the rest of the world. As I've written many times on this web site, Africans are no different from the rest of the world in terms of wars and generational timelines; but most of the rest of the world perpetrated most of its violence in World War II, while African crisis wars have been on different timelines.

Many South Africans are blaming South African president Thabo Mbeki for the violence. Mbeki is an old pal of Robert Mugabe, and Mbeki has refused to criticize Mugabe's violence and destruction of his own country. Thus, Mbeki is being blamed for the refugee crisis that's triggering the current violence.

Brief generational analysis of South Africa

Southern Africa, showing colonial names in red
Southern Africa, showing colonial names in red

South Africa has several different generational timelines, based on ethnic groups:

On May 10, 1910, the Union of South Africa was created from the Cape Colony, Natalia, Transvaal, and Orange Free State. South Africa became an active part of the world community, and with the Afrikaner and tribal (Zulu) timelines merging into common generational Awakening and Unraveling eras, there were sharp political divisions along racial lines. Both the Zulus and the Afrikaners became extremely nationalistic.

All of these different timelines merged in World War II. Different political factions wished to side with the British or with the Germans, or stay neutral. But since South Africa was part of the British empire, it fought on the side of the Allies. South Africa's fighting troops were all whites, but blacks served in non-fighting roles like drivers and guard duties.

Today, 63 years after the end of World War II, South Africa is well into a generational Crisis era.

Recall that other countries where violence has recently broken out are in different generational eras. When post-election tribal violence broke out in Kenya on January 1, I was able to predict that the violence would fizzle, because only 49 years have passed since Kenya's last crisis war, the Mau-Mau rebellion of 1959.

I had predicted the same thing when violence broke out in Burma (Myanmar) last September, because only 50 years have passed since Burma's last crisis war, the ethnic civil war that ended in 1958. In an article last week, I discussed those concepts further, especially how Cyclone Nargis might possibly have affected generational relationships.

But for South Africa, there are no such ambiguities. However, the fact that South Africa is in a generational Crisis era does not mean that the current violence will surely escalate right away. It means that South Africa is "attracted" to violence and civil war, and that a civil war has a high probability of beginning soon, when the proper triggering event occurs. (21-May-2008) Permanent Link
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Price/earnings stock index continues to surge higher and higher

I can hardly believe my eyes:

S&P 500 Price/Earnings ratio and S&P 500-stock Index as of 16-May-2008. <font face=Arial size=-2>(Source: MarketGauge ® by DataView, LLC)</font>
S&P 500 Price/Earnings ratio and S&P 500-stock Index as of 16-May-2008. (Source: MarketGauge ® by DataView, LLC)

The above is Friday's version of the graph that appears on this web site's home page. The historical average is 14, but it's been well above average since 1995, indicating that we're in a 13 year old stock market bubble. By the Law of Mean Reversion, we can expect a 13-year long correction.

For the last couple of years, the P/E ratio has been holding steady around 18, but in the last month it's been taking off again, and even appears to be accelerating upward.

This is just incredible. Just when I think that Wall Street investors have become so insane that they can't possibly get any worse, they always find a way. The insanity is becoming breathtakingly amazing. It's hard to find the words to describe it.

"Insanity in individuals is something rare - but in groups, parties, nations and epochs, it is the rule." -- Friedrich Nietzsche

I used to think that was a joke, but it's incredibly true, and it's now one of my favorite quotes.

A web site reader has called my attention to a quote by President Herbert Hoover from May 1, 1930, six months after the 1929 stock market crash:

"1930: The Worst Is Over

WASHINGTON: Attributing the Wall Street crash of last fall to the "inexorable consequences of the destructive forces of booms" and paying tribute to the American people for their "unity of action in time of national emergency," President Hoover addressed the United States Chamber of Commerce here tonight [May 1]. "We have been passing through one of those great economic storms which periodically bring hardship and suffering to our people," said Mr. Hoover. "While the stock exchange crash occurred only six months ago, I am convinced that we have now passed the worst, and with continued unity and effort we shall rapidly recover."

The world was in a hypnotic fog in 1930, and they're in a hypnotic fog today.

Other people's money

Actually, I'm going to discuss the REALLY cynical explanation.

Over the past five years, I've increasingly been discussing the high levels of financial debauchery and depravity that gave rise to the current situation.

At first I was just talking about it in terms of an occasional bit of embezzlement by someone who'd lost some money. But I've been documenting example after example, and the stench of corruption keeps increasing. From homeowners lying on their applications to financial institutions defrauding investors with faulty CDO securities, the stench of corruption is pervasive, across all institutions, from top to bottom.

In my previous article, I discussed how all mainstream economists since Greenspan was at the Fed, including professors of economics and Nobel prize winners, have all been talking sheer nonsense. And as my cynicism has increased, I conclude that the same corruption that permeated financial and real estate institutions also permeated university economics departments.

Now we have a new mystery: Why the sudden and completely unexpected surge in the price/earnings ratios? Are investors that stupid?

That explanation becomes increasingly suspect, as the number of incredibly stupid people keeps growing. After all, there must be SOMEONE who has some sense.

I've now become so cynical that I don't believe it's stupidity. I believe that P/E ratios are going up so high again because investors are investing other people's money in order to claim the commissions and fees that go along with it. In other words, why assume that the massive fraud stopped in 2007, when it's a perfectly reasonable explanation for the insanity that's going on in 2008?

I'd be willing to bet someone a lunch that the investors that are pushing up P/E ratios right now are investing other people's money, but making bonuses, fees and commissions.

Earnings estimates continue to fall

The reason that the price/earnings index is rising is because corporate earnings estimates keep falling. Each week I post the table of corporate earnings estimates, based on figures from CNBC Earnings Central supplied by Thomson Reuters. Here's the latest version:

  Date    1Q Earnings estimate as of that date
  ------- ------------------------------------
  Oct 23:             +10.0%
  Jan  1:              +5.7%
  Feb  6:              +2.6%
  Feb 29:              -1.1%
  Mar  7:              -4.3%
  Mar 14:              -7.8%
  Mar 21:              -7.9%
  Mar 28:              -9.3%
  Apr  4:             -12.2%
  Apr 11:             -14.1%
  Apr 18:             -14.6%
  Apr 25:             -14.1%
  May  2:             -15.0%
  May  9:             -17.4%
  May 16:             -17.5%

According to the pundits, investors have been keeping the market in a "trading range" for several weeks now, meaning that the major indexes have been bouncing up and down within a fairly narrow range of values. Pundits say that a "breakout" could happen at any time -- and it could happen in either direction, up or down.

In this environment, what is extremely ominous for the market is this amazing increase in price/earnings ratios that's come about in the last couple of months, after holding steady for four years.

These sharply reduced earnings estimates, resulting in increased P/E ratios, strongly suggest that the trading range "breakout" will be in the downward direction. One can't say that for sure, of course, because Wall Street investors are in a such a huge denial fantasy that anything might happen. Still, even in this fantasyland world, it's likely that investors will push P/E ratios down again, meaning that stocks will fall.

American International Group (AIG)

One of the reasons for the lowered earnings estimates was incredibly bad news last week from American International Group (AIG), the world's largest insurance company.

First, some brief history. Late last year, AIG was out front bragging about how clever they were, having avoided the credit crunch suffered by less sophisticated financial institutions. Here's how CNBC's Jim Cramer described the situation:

"AIG had been the biggest proponent of "super senior," meaning they repeatedly said that their collateralized debt obligation (CDO) exposure was of the kind that was intelligent, measured and thoughtful. They talked endlessly about how their due diligence made the difference and that unlike all of the other buyers, they kicked the tires three times and never bought the plain ol' CDOs. Then they brought in professors from Wharton to be sure that even if all heck broke loose and they were being too aggressive, they would be hedged.

They also were the first to give you the percentages of how much could go bad and that even in the worst-case scenario, they were overcapitalized. And, most important, they were insurers, no need to mark to market, they can play it all out. ...

What they did buy -- they assured us in that big teach-in dog-and-pony show in December -- was the extra-special nature of their particular buys and that, unlike everyone else, risk officers scrutinized every single piece of paper that went into their super senior insurance, meaning only the top-top part of a CDO-squared, the part where everything had to default ahead of it; they made a point of how impossible that would be.

It was all nonsense. Every bit of it. It was all Enron, frankly, unless they genuinely drank their own Kool-Aid about risk management and extra-mile supervision."

The teach-in dog-and-pony show was in December.

In February, AIG said that inadequate internal controls, as determined by its outside auditing firm PricewaterhouseCoopers, had led to "material weakness" in financial reporting relating to the fair valuation of credit default swap (CDS) portfolio obligations. The writedowns totaled around $6.2 billion. This was a complete shock to the financial community, in view of AIG's previous statements.

(For those interested in the math behind the creation of CDOs and CDSs, see "A primer on financial engineering and structured finance." For a discussion of credit default swap (CDS) counterparty risk, see "Brilliant Nobel Prize winners in Economics blame credit bubble on 'the news.'")

Last week, AIG announced massive first quarter losses, including an additional $7.81 billion in asset writedowns. However, this bad news didn't perturb investors much, because they've adopted the view that "the more disastrous the news, the closer we are to the end."

But is AIG close to the end of its writedowns? They certainly aren't saying so. That assertion is blatantly missing from AIG's press release. All it does is explain what happened so far:

"Commenting on first quarter 2008 results, AIG President and Chief Executive Officer Martin J. Sullivan said, "AIG's results do not reflect the underlying strengths and potential of AIG; rather they reflect the extremely adverse external conditions affecting the spectrum of companies exposed to the U.S. residential housing, credit and capital markets. ...

"While we anticipated a difficult trading environment, the severity of the unrealized valuation losses and decline in value of our investments were beyond our expectations. Current market conditions also contributed to a significant decline in partnership income compared to a record level in the first quarter of 2007, as well as to declines in mutual fund income. However, the underlying fundamentals of our core businesses remain solid, and several performed quite well in the quarter, despite the challenging environment many faced."

The interesting thing about this is that it evinces absolutely no indication of what happened and why it happened. It's as if some evil magician had waved a magic wand that made AIG's assets worthless, and there's every indication that the magic wand will be waved again at some unpredictable time, and more AIG assets will be written down.

The other interesting thing is that these combined $14 billion writedowns are in "credit default swap (CDS) portfolio obligations." As I explained recently, there are $45 trillion in CDSs that form long "chains," where a default of one firm could trigger a whole chain of additional defaults in other firms.

AIG lost $14 billion, which is a heck of a lot of money. Here's my guess as to what happened.

First, the rate of housing foreclosures is soaring, much faster than analysts had predicted. California has just passed a milestone: There are now over 1,000 foreclosures every day in California. Can you imagine that? Every day, 1,000 more families are turned out of their homes because of a foreclosure.

We can pretty safely assume that the CDOs that are backed by these foreclosed mortgages are themselves defaulting more and more, far faster than analysts had predicted. In fact, we recently posted some data indicating that the rate of CDO defaults is accelerating.

Therefore, we can pretty safely assume that the CDSs -- the credit default swaps written as insurance on the CDOs -- are being called in for payment. Something like that must be how AIG lost its $14 billion in "credit default swap (CDS) portfolio obligations."

And there's simply no reason at all to assume that there won't more of these. In fact, it's certain there will be, with foreclosure rates accelerating.

What would happen if AIG didn't have $14 billion to spare? In other words, suppose that writedowns had driven AIG into bankruptcy? We already know the answer to that question, because it's the same thing that would have happened if Bear Stearns had been permitted to default in March. According to Fed Chairman Ben Bernanke testifying before Congress, there would likely have been a major worldwide financial crisis if Bear had been allowed to default.

With $45 trillion in CDSs outstanding in the world, and with real estate foreclosures accelerating, it's only a matter of time before some institution will go bankrupt because of CDO defaults. That will be a memorable time.

And in this environment, we have investors pushing price/earnings ratios up to stratospheric level.

As I've said, I keep trying to figure out what the hell is going on in the world. What Wall Street is doing is absolutely beyond belief. The craziness and insanity, the resistance to seeing what's going on right before their eyes, can barely be grasped.

La Valse à Mille Temps

I like to post this song every now and then, because it should be the theme song for the utter craziness going on, as the world appears increasingly to be spinning out of control.

It's a Jacques Brel song, "La Valse à Mille Temps" or "Carousel" in the English version. Play the MP3 version of the song and sing along:

    We're on a ferris wheel
    A crazy ferris wheel
    A wheel within a wheel
    That suddenly reveals
    The stars begin to reel
    And down again around
    And up again around
    And up again around
    So high above the ground
    We feel we gotta yell
    We're on a carousel
    A crazy carousel.

(By the way, the above song is quite different from the original French song by Jacques Brel. Check out this hilarious video of Jacques Brel himself singing "La Valse à Mille Temps," presented with English subtitles.)

As before, I nominate "La Valse à Mille Temps" as the theme song for these times, as the crazy carousel goes spinning out of control, and we head for the greatest financial disaster in the history of the world. LAH luh LAH luh. (19-May-2008) Permanent Link
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WSJ's page one story on Bernanke's Princeton "Bubble Laboratory" is almost incoherent

So is Thursday's speech on bubbles by Fed Governor Frederic S. Mishkin.

There's barely a sentence in Friday's front page Wall Street Journal article entitled, "Bernanke's Bubble Laboratory: Princeton Protégés of Fed Chief Study the Economics of Manias," that makes any sense at all.

Let's start with the first three paragraphs:

"First came the tech-stock bubble. Then there were bubbles in housing and credit. Chinese stocks took off like a rocket. Now, as prices soar on every material from oil to corn, some suggest there's a bubble in commodities.

But how and why do bubbles form? Economists traditionally haven't offered much insight. From World War II till the mid-1990s, there weren't many U.S. investing manias for them to look at. The study of bubbles was left to economic historians sifting through musty records of 17th-century Dutch tulip-bulb prices and the like.

The dot-com boom began to change that. "You were seeing live, in action, the unfolding of lots of examples of valuations disconnecting from fundamentals," says Princeton economist Harrison Hong. Now, the study of financial bubbles is hot."

I read stuff like this, and it makes me want to tear my hear out.

I don't even understand how somebody write these sentences -- "From World War II till the mid-1990s, there weren't many U.S. investing manias for them to look at. ... The dot-com boom began to change that." -- and not even have the thought cross their minds, "Hmmmmm. Maybe the reason that there weren't bubbles from WW II to the mid-1990s is because the generations of survivors of the Great Depression were in charge."

How dense to do you have to be not to see something so obvious -- or at least ask the question and debate it?

And so, once again, we have some brilliant economics professors, this time from Princeton, who can't see the most obvious thing, right in front of their noses.

As I've said pointedly many times, mainstream economics and macroeconomics have been a total failure in predicting or explaining anything that's happened since the 1990s. Why did the dot-com bubble happen at all? No explanation. Why did it begin in 1995, rather than 1985 or 2005? No explanation. The obvious, simple explanation is that the early 1990s was the time when the generation of risk-averse survivors of the Great Depression all retired, all at once, but it never even crosses the minds of these people long enough to even debate it. It's such a difficult, abstract concept to these brilliant economics professors that they're totally oblivious to it.

Musty records

And this sentence from the article is a real laugh: In order to study bubbles, you have to look through "musty records of 17th-century Dutch tulip-bulb prices and the like." This statement captures the contempt that journalists, analysts, professors and economists have today for anything that happened before they were born, as if the world were created just for them.

Well, what about the 1920s stock market bubble mania? Are those records too musty as well?

Lots of people have looked at those musty records. American Prospect's Robert Kuttner testified before Congress last year, comparing 2007 to 1929. Also last year, the Bank of International Settlements did an analysis, and predicted a coming 1930s style Depression. But I guess that kind of study is too musty for these people.

To repeat what I've said before, if you go back through history, there are 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.

These are called "generational crashes" because they occur every 70-80 years, just as the generation of people who lived through the last one have all disappeared, and the younger generations have resumed the same dangerous credit securitization practices that led to the previous generational crash. After each of these generational crashes, the survivors impose new rules or laws to make sure that it never happens again. As soon as those survivors are dead, the new generations ignore the rules, thinking that they're just for "old people," and a new generational crash occurs.

We're now overdue for the next generational crash, and it might occur tomorrow, next week, next month, or next year.

Post hoc, ergo propter hoc

Let's take another paragraph from the article:

"Bubbles don't spring from nowhere. They're usually tied to a development with far-reaching effects: electricity and autos in the 1920s, the Internet in the 1990s, the growth of China and India. At the outset, a surge in the values of related businesses and goods is often justified. But then it detaches from reality."

This is about as silly a paragraph as you can imagine. How was electricity "tied" to the 1920s bubble??? Where do they come up with this stuff? (It turns out that technology is tied to something completely different -- K-cycles -- as I explained in "System Dynamics and the Failure of Macroeconomics Theory.")

This reasoning is a logical fallacy that has a name: Post hoc, ergo propter hoc, which means, "After this, therefore because of this." In other words, if B occurs after A, then the fallacy is to conclude that A caused B.

Standard, mainstream economics, as practiced by standard, mainstream professors of economics at Princeton and other places, is FULL of Post hoc, ergo propter hoc fallacies. Economists say, "Hmm. I don't understand why this recession occurred. Well, Congress did X the year before, so that must be the cause." Or, "Hmm. I don't understand why this real estate bubble occurred. Well, the Fed reduced interest rates in 2003, and that must be the cause." Of course, it never occurs to such people to wonder why other interest rate reductions didn't cause real estate bubbles, but that's what a logical fallacy entails.

In the article, the implication of the word "tied" is that the bubble was caused by electricity and autos, or at least was caused by something that gave rise to electricity and autos AND the bubble. This connection is made simply because they both happened at the same time.

The Great Bubble of the 1960s-1970s

Using this reasoning, one could argue that a huge bubble should have occurred in the 1960s-70s. There were huge developments in mainframe computers and minicomputers at that time, and almost every organization was running part of its business with the aid of computers. The Xerox machine was revolutionizing office procedures. Countries in Europe and Asia were recovering from WW II, and their economies were surging. America went off the gold standard. It was a perfect time for a bubble, but of course the bubble never happened. Why not?

The obvious reason is that the people running businesses and financial institutions at that time were all Great Depression survivors. But this possibility is never even suggested or debated. That's absolutely incredible to me.

But that's the way mainstream economics works. When the economists don't understand something, they say, "Gee, what was going on at the same time, or just before? That must be the cause."

This is all that mainstream economics does, and that's why it's always wrong. As I keep saying, mainstream economists didn't predict and can't explain the 1990s bubble or anything significant that's happened since then, including the current mess. Economists have almost a 0% success record. They poke around like a blind man in a room full of chairs, and every time they move, they trip and fall.

Let's take a look at another part of the article:

""The two most important characteristics of a bubble," says [Princton economist] Wei Xiong, are: "People pay a crazy price and people trade like crazy." ...

According to a model he developed with Mr. Scheinkman, investors dogmatically believe they are right and those who differ are wrong. And as one set of investors becomes less optimistic, another takes its place. Investors figure they can always sell at a higher price. That view leads to even more trading, and, at the extreme, stock prices can go beyond any individual investor's fundamental valuation."

I hope we didn't waste any taxpayer money developing a model that says that "investors ... believe they are right and those who differ are wrong."

This stuff tells you absolutely nothing why these bubbles occur. Once again we have the situation where the totally obvious explanation, the generational explanation, isn't even debated. Instead, you come up with crap like the above. This is what we get from Ben Bernanke's Princeton Department of Economics. It's really sickening.

Speech by Fed Governor Frederic S. Mishkin

"But," you may be thinking, "this is just a newspaper article. You're being unfair criticizing the article about the speech, when you should be looking at the actual sources.

Fair enough. Let's take a look at the actual speech, given by Fed Governor Frederic S. Mishkin on Thursday.

"Over the centuries, economies have periodically been subject to asset price bubbles--pronounced increases in asset prices that depart from fundamental values and eventually crash resoundingly. Because economies often fare very poorly after a bubble bursts, central bankers need to think hard about how they should address such bubbles."

So far, so good.

"Financial history reveals the following typical chain of events: Because of either exuberant expectations about economic prospects or structural changes in financial markets, a credit boom begins, increasing the demand for some assets and thereby raising their prices.4 The rise in asset values, in turn, encourages further lending against these assets, increasing demand, and hence their prices, even more. This feedback loop can generate a bubble, and the bubble can cause credit standards to ease as lenders become less concerned about the ability of the borrowers to repay loans and instead rely on further appreciation of the asset to shield themselves from losses.

At some point, however, the bubble bursts. The collapse in asset prices then leads to a reversal of the feedback loop in which loans go sour, lenders cut back on credit supply, the demand for the assets declines further, and prices drop even more. The resulting loan losses and declines in asset prices erode the balance sheets at financial institutions, further diminishing credit and investment across a broad range of assets. The decline in lending depresses business and household spending, which weakens economic activity and increases macroeconomic risk in credit markets.5 In the extreme, the interaction between asset prices and the health of financial institutions following the collapse of an asset price bubble can endanger the operation of the financial system as a whole."

Here we already see the major problem in the thinking of mainstream economists.

What he describes here is very important, the "feedback loop" that occurs when a credit bubble to be formed:

This "feedback loop" generates a bubble, with the following results:

This is all true, but it's about the silliest stuff imaginable. It's like saying that what happens when it's raining is that water drops fall onto things, with the result that things get wet. That's about as deep as it gets with these mainstream economists.

These are all things that happen before and during a bubble, but he's implying (sort of) that they cause the bubble, which is a Post hoc, ergo propter hoc fallacy. And if he's not really assigning cause, then he's simply stating a collection of useless facts.

I'm going to raise the same question I asked earlier: Why was there no bubble in the 1960s and 1970s? I seem to vaguely recall some exuberant expectations in the computer field. And economists are always referring to "The Great Inflation of the 1970s," so there was plenty of asset appreciation. Why was there no bubble? Why was there no feedback loop? Why didn't lenders become less concerned about borrowers' ability to repay loans?

In fact, why were there no important bubbles at all from 1945 to 1995? If you've been studying economics your whole life, and you're a professor of economics, and you're a Fed governor, and you're a respected economist around the world, then why don't you answer the question? Why were there no bubbles until 1995, and then there was the dot-com bubble and the housing and credit bubbles? What answers do your macroeconomic models give you?

Once again, the obvious answer is that all the risk-averse Great Depression survivors retired in the early 90s, and were replaced in senior management positions by risk-seeking Boomers. But this is waaaaaaay too abstract and difficult for the world class mainstream economists to debate or even think about.

Do you wonder, Dear Reader, why I say I feel like tearing my hair out?

Regulating bubbles

Continuing with Mishkin's speech, Mishkin says that "asset price bubbles can be hard to identify." Maybe some are, but the dot-com bubble was obviously a bubble in 1996 when Alan Greenspan made his "irrational exuberance" statement. So Mishkin is making excuses here. It's actually quite easy to identify the major bubbles, and I'll explain how later in this article.

Mishkin gives these reasons why raising interest rates, and other monetary tools, are not effective policies when a bubble is identified:

"Second, even if asset price bubbles could be identified, the effect of interest rates on asset price bubbles is highly uncertain. Although some theoretical models suggest that raising interest rates can diminish the acceleration of asset prices, raising interest rates may be very ineffective in restraining the bubble, because market participants expect such high rates of return from buying bubble-driven assets.12 Other research and historical examples (which I will discuss later) have suggested that raising interest rates may cause a bubble to burst more severely, thereby increasing the damage to the economy.13 Another way of saying this is that bubbles are departures from normal behavior, and it is unrealistic to expect that the usual tools of monetary policy will be effective in abnormal conditions. The bottom line is that we do not know the effects of monetary policy actions on asset price bubbles."

This is a very interesting paragraph when you understand that bubbles are caused by generational changes. When risk-seeking generations (like the Boomers and Gen-Xers) come into power, Fed interest rates are just part of the noise that these people ignore. If you're lying on your mortgage loan application, or if you're defrauding the public with worthless CDOs, then it makes no difference at all what the Fed funds rate is. So Mishkin is certainly correct that monetary or Fed policy will have no impact whatsoever on a generational bubble.

Instead, Mishkin recommends the adoption of regulations to "prevent future feedback loops." He says:

"More generally, our approach to regulation should favor policies that will help prevent future feedback loops between asset price bubbles and credit supply. A few broad principles are helpful in thinking about what such policies should look like. First, regulations should be designed with an eye toward fixing market failures. Second, regulations should be designed so as not to exacerbate the interaction between asset price bubbles and credit provision. For example, research has shown that the rise in asset values that accompanies a boom results in higher capital buffers at financial institutions, supporting further lending in the context of an unchanging benchmark for capital adequacy; in the bust, the value of this capital can drop precipitously, possibly even necessitating a cut in lending."

This paragraph contains another logical fallacy, circular reasoning. He's already described the feedback loop with high asset prices and increased credit, but then he refers to research that finds that banks have more money to lend at such times. They would need more money anyway to increase credit.

In other words, Mishkin really has nothing to offer for regulation proposals.

It's been clear for years that economists don't have a clue about regulating bubbles. There were plenty of regulations enacted in the 1930s, but as the Boomers took charge, they were all repealed or ignored. The amount of fraud occurring in the real estate and credit bubbles was massive and pervasive, and occurred at every level. That fraud is still occurring (see below), and so new regulations are useless, and probably harmful.

Identifying bubbles

Economists these days are likely to say that it's impossible to identify a bubble. And yet, I knew in 2002 we were in a stock market bubble, and I knew in 2004 we were in a real estate and credit bubble. If it's so hard to identify a bubble, then how the hell did I know? And Alan Greenspan knew that there was a stock market bubble in 1996 when he made his "irrational exuberance" speech. How did he know?

The parts of Mishkin's speech that I quoted so far are merely vacuous, but when it comes to the subject of identifying bubbles, Mishkin should be a standup comedian.

Consider the following from the speech:

"Earlier, I pointed out that a bubble could be hard to identify. Indeed, I think this is especially true of bubbles in the stock market. Central banks or government officials are unlikely to have an informational advantage over market participants. If a central bank were able to identify bubbles in the stock market, wouldn't market participants be able to do so as well? If so, then a bubble would be unlikely to develop, because market participants would know that prices were getting out of line with fundamentals."

This is a hilarious argument. Mishkin says that central bankers are no more able to detect bubbles than ordinary investors are. Well, Greenspan saw the dot-com bubble in 1996, and he saw the real estate and credit bubbles in 2004-2005, but "the market participants" didn't do so. This is just another dumb statement.

Anyway, it's very easy to detect a stock market bubble, as I showed in "How to compute the 'real value' of the stock market."

The steps for determining a bubble are as follows:

You can apply this kind of analysis directly to the stock market values themselves, as I showed in "How to compute the 'real value' of the stock market."

But in that article, I actually started with something easier to see, the S&P Price Earnings index, with the following graph, which I've posted many times before:

S&P 500 Price/Earnings Ratio (P/E1) 1871-2007
S&P 500 Price/Earnings Ratio (P/E1) 1871-2007

Now, can Mishkin or anyone else possibly look at this graph and say, "Duh! I have no idea whether we're in a stock market bubble."? It's utter nonsense.

The above graph is modified from the one you've seen before -- a web site reader modified my graph to fill in the purple and green colors. He wrote to me as follows:

"If we talk about [mean reversion], I think we can also say that the area above the historic average line will equal the area below the historic average line over time. How much green will we need to balance out the purple on the attached graph? Truly ominous. Thanks for sharing the your insight."

This is exactly what the Law of Mean Reversion means. The historic average of the P/E1 (price divided by one-year trailing earnings) is about 14. From 1995 to the present, it's averaged around 25. You don't have to be a Fed Governor or a Princeton professor of economics to see that there's a bubble. Why is it that I can see it, and my web site reader can see it, but Bernanke and Mishkin can't see it?

Is Greenspan the last economist?

You know, back in 2004-2005 I was commenting on all of Greenspan's speeches. I agreed with some things, disagreed with other things, but his speeches always made sense and contained real content. But I've heard barely a single coherent statement from any economist since Greenspan. This speech by Mishkin was ridiculous, and the recent statements by economics Nobel Prize winner Joseph Stiglitz verged on total absurdity.

Alan Greenspan said some remarkable things as Fed chairman. Actually, they didn't seem remarkable at the time, but compared to what we've been hearing lately, they're incredible.

Well, admittedly Greenspan used circular reasoning when he discussed the housing bubble in 2004, but at least he recognized the possible existence of a housing bubble -- something that no one else fathomed throughout 2005 and 2006.

And then there was Greenspan's incredible reversal of opinion in February 2005. That was quite possibly the most significant speech of this entire decade, and yet I've never seen a single article (except on this web site) mention it, or a single commentator comment on it.

Greenspan had previously said that after making his "irrational exuberance" remark in 1996, he and the Fed had decided not to deal with the bubble, but to wait until the bubble burst, and then deal with its consequences -- by lowering interest rates to near-zero. In 2004, he expressed satisfaction with this strategy and concluded "that our strategy of addressing the bubble's consequences, rather than the bubble itself, has been successful."

During 2004, he began to express increasing concern, and in February 2005, he reversed himself completely with the statement, "The dramatic advances over the past decade in virtually all measures of globalisation have resulted in an international economic environment with little relevant historical precedent." He didn't predict a crash at that time, but he repudiated his previous reasoning and said, in essence, that he had no idea what was going on in the world.

Can you imagine Ben Bernanke admitting to any such reversal of opinion? Can you imagine any of these other mainstream economists doing it? None of them has the spine.

By August 2005, Greenspan discussed the danger of risk aversion, when he said: "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."

This is exactly what happened what happened with the credit crunch in August of last year. Do you remember how everyone was caught by surprise by the credit crunch? And yet, Greenspan specifically predicted it two years earlier.

In December 2005, Greenspan gave a harsh doom and gloom speech, predicting many of the economic problems we're seeing now.

Even after leaving the Fed, Greenspan has often spoken out. For example, in September 2007, he admitted that macroeconomic forecasting is a failure, which is something that I've been saying for a long time, for much the same reasons that Greenspan gave.

The point I'm making here is that Greenspan said things of substance, whether I agreed with him or not -- but they had substance. His reasoning was powerful, and made economic sense.

But no one since then is anything like that. Whether it's Bernanke or Mishkin or Stiglitz or any of the others I've commented on, they say things that are hopelessly ridiculous. Why is that? Is there something in the water that's making economists increasingly stupid?

What's wrong with mainstream economists?

How is it possible that these economists are saying such stupid things?

I'm becoming increasingly convinced that they must be hiding their own complicity in what happened, and possibly committed fraudulent acts themselves.

It's already become very well-known how much fraud occurred in the financial and real estate industries already.

The housing bubble was caused by massive fraud throughout the entire financial and real estate industries, from top to bottom, whether it was homeowners lying on their applications, construction firms colluding with appraisers and brokers to get kickbacks by over-valuing homes, lenders who resold mortgages without checking any of the claims, lenders who adopted predatory lending practices, granting loans to people with no hope of making payments, investment banks that securitized loans based on the assumption that real estate prices would rise forever, ratings firms and monoline insurers that took fat fees to lie about these potentially worthless securities.

This fraud, this depravity, permeated EVERY financial institution at EVERY level, almost without any exception. Is it possible that the same amount of fraud didn't also permeate university Economics departments?

These professors of economics were smart enough to become professors of economics, and to understand the complex financial models that were being developed, but today they're too stupid to say anything coherent about them.

Writing for this web site, and writing about this massive fraud, has not only sickened me, but has made me about the most cynical person on earth. These economists can't possibly be as stupid as their statements, so they must be lying to cover up their own complicity and fraud.

Incidentally, let's be clear about this: The worst fraud occurred in 2007, when everybody already knew that these CDOs were becoming worthless. This realization only caused the financial institutions to speed up their activities, before it might be too late for the managers to get their fat bonuses.

And the fraud is continuing today, and is being encouraged by government regulators. Thanks to false statements by financial institution executives, worthless assets are still on the books at high valuations, defrauding investors who count on these valuations to decide whether to invest in the financial institution's stock. And government regulators are specifically saying that financial institutions should not write down their assets until they have to.

That's why this whole business about new regulations is nonsense. And it's why we might as well assume that university economics departments are participating in the fraud as much as everyone else is.

'Greenspeak' and 'Lenscap stupidity'

There's one other point relevant to this discussion, and that's the "Greenspeak" or "Fed speak" joke that journalists and analysts make, and that Greenspan himself has mentioned.

According to this view, Greenspan was impossible to understand because he used convoluted language. This whole subject is totally ridiculous. Maybe while he's talking you can't understand what he's saying, but anyone can read his speeches over and over again, as I've done, and understand everything that he's saying. For hotshot financial reporters at the Wall Street Journal or the New York Times or on CNBC to say that they can't figure out what Greenspan is saying is simply an admission of their own stupidity.

Israel's Defense Minister Amir Peretz (right) looks through binoculars with the lens cap on. On the left is the army's new Chief of Staff, Lt. Gen. Gabi Ashkenazi. They're reviewing a military drill in the Golan Heights. (Feb 2007) <font face=Arial size=-2>(Source:</font>
Israel's Defense Minister Amir Peretz (right) looks through binoculars with the lens cap on. On the left is the army's new Chief of Staff, Lt. Gen. Gabi Ashkenazi. They're reviewing a military drill in the Golan Heights. (Feb 2007) (Source:

What these financial reporters and analysts are exhibiting is what I've been calling "lenscap stupidity." This refers to a February, 2007, photo showing Israeli defense minister Amir Peretz spending a half-hour military briefing looking through binoculars with the lenscap on. How stupid do you have to be to keep looking through binoculars with the lenscap on?

And remember, this was the guy in charge of the armed forces during Israel's disastrous 2006 war with Lebanon. No wonder Israel panicked, went to war with no plan, and stumbled from one strategy to another. The Defense Minister was looking at the war through binoculars with the lenscap on.

Looking at facts through binoculars with the lenscap on has several advantages. It lets you imagine any facts you want, and ignore any facts you want.

The same lenscap stupidity is exhibited by Greg Ip at the Wall Street Journal, by Steve Lieseman at CNBC, and by economists like Mishkin and Stiglitz. The reason that they say such moronic things is that they're looking at the facts through binoculars with the lenscap on.

I guess what I'm coming to realize is this: Love him or hate him, Alan Greenspan is the last economist in recent times who actually looks at the facts. He seems to be the last economist not to exhibit lenscap stupidity.

And that probably also means that he's the last major economist not to have participated in fraudulent activities himself.

More on the stock market bubble

The P/E ratio graph that appears several paragraphs back in this article is the simplest and most obvious proof that we're in a stock market bubble, and that there's going to be a crash. That's just a straightforward P/E ratio graph, and the reason you never see it in the newspapers or on CNBC is because it's too frightening for people with lenscap stupidity.

But while we're on the subject of how you can detect whether there's a stock market bubble, I want to display again a graph that I used in an article last November:

Dow Industrials since 1950 showing 'generational moods'
Dow Industrials since 1950 showing 'generational moods'

This graph shows the Dow Industrials since 1950, with a (blue) trend line computed back to the 1890s. For the complete discussion of this graph, see the original article.

The first thing to notice is that the Law of Mean Reversion applies, and the Dow will have to fall well below the blue line for a long time to maintain the same average. That alone means that we've been in a huge bubble since 1995, and that there's a huge crash coming.

But I want to dwell for a moment for the two points labeled on the graph as "Points of inflection." When I started looking at this subject in 2002, I noticed the sharp corner in the curve that occurred in 1995, and I knew that this had to be extremely significant. Things in nature tend to be continuous, and this corner was a discontinuity in the first and second derivatives of the moving averages. Later, the second point of inflection in 2003 became apparent.

These discontinuities must be explained. In my original article, I gave a generational explanation of these points of inflection.

Mainstream economics can't explain anything about bubbles, so macroeconomic theory is useless in explaining these points of inflection. And the Princeton "bubble laboratory" is completely on the wrong track -- they can't even explain something simple, like why there were no bubbles in the 1960s-70s, let alone something more sophisticated like these points of inflection.

So this article is written to some future macroeconomics researcher, in a less fraudulent generation, who actually wants to figure out why bubbles occur, and what can be done about them. The key is to incorporate System Dynamics into macroeconomic models, and to study such things as those points of inflection. This is way beyond the capabilities of the current generation of researchers.

In the meantime, we'll just have to watch mainstream economists blunder from one policy to the next and one theory to the next, and suffer the consequences as they make the coming financial crisis even worse than it might have been.

I've estimated that the probability of a major financial crisis (generational stock market panic and crash) in any given week from now on is about 3%. The probability of a crisis some time in the next 52 weeks is 75%, according to this estimate. (18-May-2008) Permanent Link
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How inflammatory was President Bush's speech to Israel's Knesset?

The speech may have touched some nerves among the Palestinians, and changed American policy.

To people in Washington, everything that happens in the world is about them. That's why President George Bush's speech to the Israeli Knesset on Thursday is being interpreted by Washington in terms of its significance to the Presidential campaign. The people in Washington are pretty much oblivious to what's happening in the Mideast anyway, so it probably doesn't matter. We'll come back to that later.

What surprised me as I watched the speech live was that it appeared to me to be delivering a fairly inflammatory message to the Palestinians, and appears to have signaled a significant change in American policy.

President Bush spent the earlier part of the day obviously enjoying the Jerusalem ceremonies celebrating the 60th anniversary of the creation of the state of Israel, following the partitioning of Palestine by the United Nations in 1948.

In the actual speech, he said the following:

"Shalom. Laura and I are thrilled to be back in Israel. We have been deeply moved by the celebrations of the past two days. And this afternoon, I am honored to stand before one of the world's great democratic assemblies and convey the wishes of the American people with these words: Yom Ha'atzmaut Sameach. ...

We gather to mark a momentous occasion. Sixty years ago in Tel Aviv, David Ben-Gurion proclaimed Israel's independence, founded on the "natural right of the Jewish people to be masters of their own fate." What followed was more than the establishment of a new country. It was the redemption of an ancient promise given to Abraham and Moses and David -- a homeland for the chosen people Eretz Yisrael.

Eleven minutes later, on the orders of President Harry Truman, the United States was proud to be the first nation to recognize Israel's independence. And on this landmark anniversary, America is proud to be Israel's closest ally and best friend in the world."

He went on to make it sound almost as if Americans had been supporting Israel since the 1620s. Nothing like that is true, of course. As I wrote in an article in 2006, America considered itself to be a Protestant nation before World War II, sometimes to the exclusion of Jews and Catholics. It was the 1917 Bolshevik Revolution, and later Hitler's attempted extermination of the Jews, that finally led Americans to conclude that "to be a Protestant, a Catholic, or a Jew are today the alternative ways of being an American."

The change in American policy, which apparently no one in politics-obsessed Washington even picked up on, comes from the following text of the speech:

"The fundamental insight, that freedom yields peace, is the great lesson of the 20th century. Now our task is to apply it to the 21st. Nowhere is this work more urgent than here in the Middle East. We must stand with the reformers working to break the old patterns of tyranny and despair. We must give voice to millions of ordinary people who dream of a better life in a free society. We must confront the moral relativism that views all forms of government as equally acceptable and thereby consigns whole societies to slavery. Above all, we must have faith in our values and ourselves and confidently pursue the expansion of liberty as the path to a peaceful future.

That future will be a dramatic departure from the Middle East of today. So as we mark 60 years from Israel's founding, let us try to envision the region 60 years from now. This vision is not going to arrive easily or overnight; it will encounter violent resistance. But if we and future Presidents and future Knessets maintain our resolve and have faith in our ideals, here is the Middle East that we can see:

Israel will be celebrating the 120th anniversary as one of the world's great democracies, a secure and flourishing homeland for the Jewish people. The Palestinian people will have the homeland they have long dreamed of and deserved -- a democratic state that is governed by law, and respects human rights, and rejects terror. From Cairo to Riyadh to Baghdad and Beirut, people will live in free and independent societies, where a desire for peace is reinforced by ties of diplomacy and tourism and trade. Iran and Syria will be peaceful nations, with today's oppression a distant memory and where people are free to speak their minds and develop their God-given talents. Al Qaeda and Hezbollah and Hamas will be defeated, as Muslims across the region recognize the emptiness of the terrorists' vision and the injustice of their cause."

Well, isn't that special? First off, freedom most certainly does not yield peace. This web site has demonstrated over and over that genocidal crisis wars occur at regular intervals whether countries are free or not.

What's really shocking though is that Bush is talking about a Palestinian state 60 years from now. As of just a few days ago, the official US policy was a Palestinian state by the end of the year, before Bush leaves office.

Not only that, but get this sentence: "This vision is not going to arrive easily or overnight; it will encounter violent resistance." Is Bush predicting a Mideast war? Sounds like it to me.

Bush announced the Mideast Roadmap to Peace in May, 2003. I wrote my first major predictive article, "Mideast Roadmap - Will it bring peace?" I said that the Roadmap would fail, and that the disappearance of Yasser Arafat and Ariel Sharon, when it occurs, would be part of a major generational change that would lead to a new genocidal war between Jews and Arabs, re-fighting the war between Jews and Arabs that followed the partitioning of Palestine and the creation of the state of Israel in the late 1940s.

Since that time, Yasser Arafat and Ariel Sharon have both disappeared, and the Mideast has been sliding into greater and greater chaos. Still, neither the Israelis nor the Palestinians have really crossed the line to provoke what might turn into all-out war.

President Bush's Roadmap to Peace has been part of the fabric that's kept both Palestinians and Israels hoping that a peaceful solution is near. If Bush is abandoning the Roadmap for 60 years, then he's also abandoning a lot of hope.

From the point of view of Generational Dynamics, this is important because there's no way to predict what effects this speech will have. Generational Dynamics is concerned with the behaviors and attitudes of large masses of people, and Bush's obvious warm embrace of Israel and abandonment of the Roadmap could well have a significant effect. But what will it be?

What effect does President Bush's speech have, especially on the Palestinians, who at the same time are commemorating the 60th anniversary of "al-Naqba" -- the catastrophe. Was the speech as inflammatory to the Palestinians as it appeared to me to be? Will President Bush's speech have any effect that will either speed up or slow down the Palestinians and Israelis on the road to full-scale war? We'll have to wait and see.

Finally, I'd like to comment on the part of Bush's speech that caused the political firestorm:

"And that is why the founding charter of Hamas calls for the "elimination" of Israel. And that is why the followers of Hezbollah chant "Death to Israel, Death to America!" That is why Osama bin Laden teaches that "the killing of Jews and Americans is one of the biggest duties." And that is why the President of Iran dreams of returning the Middle East to the Middle Ages and calls for Israel to be wiped off the map.

There are good and decent people who cannot fathom the darkness in these men and try to explain away their words. It's natural, but it is deadly wrong. As witnesses to evil in the past, we carry a solemn responsibility to take these words seriously. Jews and Americans have seen the consequences of disregarding the words of leaders who espouse hatred. And that is a mistake the world must not repeat in the 21st century.

Some seem to believe that we should negotiate with the terrorists and radicals, as if some ingenious argument will persuade them they have been wrong all along. We have heard this foolish delusion before. As Nazi tanks crossed into Poland in 1939, an American senator declared: "Lord, if I could only have talked to Hitler, all this might have been avoided." We have an obligation to call this what it is -- the false comfort of appeasement, which has been repeatedly discredited by history."

The Senator that President Bush was referring to was William Edgar Borah. Borah was in the Missionary Generation, the generation born right after the end of the Civil War, and so in the same generational archetype as today's Boomers, born right after WW II. Borah was just as certain as today's Boomers that his "politically correct" views were the absolute Golden Truth of the Universe.

Borah was a leading isolationist. He opposed involvement in what became World War I, he opposed U.S. membership in the League of Nations, and he favored neutrality with respect to what became World War II. He died in 1940, well before the Pearl Harbor attack that pulled America into the war.

However, I'm always nervous when President Bush or someone else compares Iranian President Ahmadinejad to Hitler. Hitler came to power in Germany during a generational Crisis era, and had the support of the masses of German people. Ahmadinejad came to power in Iran during a generational Awakening era, and he's become extremely unpopular, especially with young people.

I wrote a detailed strategy analysis of Iran last year, and an analysis of the Iran-China relationship earlier this year. The thrust is that Ahmadinejad is trying to provoke hostile action against Iran by Americans or Israelis in order to regenerate the unity that Iran felt after the Islamic Revolution of 1979. Of course that kind of unity only occurs during and immediately after a crisis war, but Ahmadinejad doesn't know that.

Ahmadinejad talks like Hitler. He probably considers Hitler to be his hero. Maybe he even aspires to be another Hitler, or to have the evil greatness of Hitler. But he's no more than a tintype Hitler, and never will be. Ahmadinejad is a loser who will even fail at being evil. (16-May-2008) Permanent Link
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Sichuan earthquake devastation opens a period of good will with China, in contrast to Burma

China's sudden openness draws friendship and sympathy from Taiwan, Japan and elsewhere.

In a remarkable turnaround from standard paranoic Chinese Communist Party (CCP) policy, China is being completely open about the recovery efforts after the massive May 12 earthquake in Sichuan province.

The situation is horrific. Almost entire populations from towns around the quake zone have been wiped out, and the buildings leveled. There are some 30,000 people trapped under buildings. Government sources indicate that there could be 50,000 deaths or more, with over 100,000 injuries. Hundreds of children were buried in schools, while adults were killed in their workplaces and homes. People who survive stand outside of collapsed buildings hoping that workers can save family members trapped inside.

China has mobilized 130,000 troops to perform rescue and recovery work in the quake zone. However, not enough equipment is available, and so Chinese government officials have appealed to the public to donate basic equipment -- hammers, cranes, shovels, and rubber boats -- according to the BBC.

What has surprised observers is China's total openness about the situation. China has always been highly secretive about natural disasters in the past, but that's all changed now. International news organizations are permitted to travel freely in the disaster area, and produce live reports for their audiences. Furthermore, the censors aren't blocking the bad news from reaching the Chinese people, and Chinese reporters are free to report everything.

What's most unexpected is that, after initially requesting cash-only foreign aid, China is accepting other forms of aid for the relief operation.

A 60-member Japanese rescue team is headed for the quake region to help Chinese workers; Taiwanese and Russian planes are delivering supplies to the region, in contrast to previous policy; and Russian rescuers and medics will be helping out as well.

Contrast to Burma (Myanmar)

This is all in very sharp contrast to what's been happening since the May 3 cyclone Nargis disaster in Burma.

Although no foreign aid workers or news reporters are allowed in the Irrawaddy delta, the BBC has been quite effective in getting the story out.

Wreckage and bodies are strewn everywhere. Hundreds of thousands of people, isolated in thousands of villages in the delta, are facing famine and disease. There's no fresh water and no food. People are starving, and desperate for aid, but most are getting no aid at all.

2.5 million people need aid, and most aren't getting it. Meanwhile, supplies and aid workers are in Thailand, on the border of Burma, unable to reach the starving people because Burma's military junta won't permit it. The few supplies that Burma allows into the country are hoarded by the army, and little of it is apparently reaching the victims.

The junta and their families, incidentally, have lavish lifestyles in sumptious palaces.

There's little doubt in my mind that when the relief effort ends, the Burmese military junta is going to be accused, either formally or informally, with criminal genocide.

When I wrote about this a few days ago, I indicated that it seemed likely that China would also receive a good deal of blame for the Burma genocide, since China has supported Burma's isolationist policies, and that would be one more issue that would human rights demonstrators would use against China.

However that's at least partially changed now, thanks to China's almost total openness in the Sichuan earthquake disaster.

In fact, there's now a great deal of international good will directed at the Chinese government, among both the Chinese people and people outside of China.

One commentator described the situation this way:

"But outside of China's borders, the Sichuan quake has radically altered the storyline of the 2008 Olympics, which has been until now one of escalating tensions. An ugly year has been redefined by its ugliest, saddest moment, and China's most ardent critics know that it is time to put differences aside.

China's most vocal supporters, its nationalist netizens, are aware of this, too. As one blogger posted on the portal, "So many disasters have happened in China in 2008. This is a special moment. We should unite together to deal with the emergency, not put energy and strength into criticizing the government."

An earthquake doesn't change what happened in Tibet, nor does it erase any sins, real or imagined, in connection with Darfur, but it does place the Chinese people and their fates front and center in the world's consciousness. That is the mandate of this catastrophe, and regardless of its political implications for the Communist Party, this mandate will surely be felt when the Olympics begin on Aug. 8."

For the time being, China's crackdown in Tibet is forgotten, the human rights demonstrations are forgotten, the threats of war over Taiwan are forgotten.

From the point of view of Generational Dynamics, this is all fascinating because there's no way to predict what effects these twin disasters will have. Generational Dynamics is concerned with the behaviors and attitudes of large masses of people, and there's little doubt that the twin disasters will have a marked effect. But what will it be?

Will this era of good feeling last through the summer Olympics? Will there be some kind of violent backlash in Burma? Will either disaster have an effect that either speeds up or slows down the march toward the Clash of Civilizations world war?

By studying these kinds of things, we can add to the generational theory and present it on this web site, which is the only web site in the world that tells how the world works. (16-May-2008) Permanent Link
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Sudan's Darfur war expands as Khartoum comes under attack by rebels

What were they thinking? everyone's asking. But it DOES make sense.

Sudan and neighboring countries.  Sudan has three major regions: Northern Sudan, Southern Sudan, and Darfur (Western Sudan)
Sudan and neighboring countries. Sudan has three major regions: Northern Sudan, Southern Sudan, and Darfur (Western Sudan)

Last week, a long convoy of "rebels" from the Justice and Equality Movement (JEM) traveled in pickup trucks from Darfur towards Sudan's capital, Khartoum. Sudan's army received some intelligence about the convoy on Thursday, but were still caught completely by surprise on Saturday, May 10, when the rebels attacked Omdurman, an élite suburb of Khartoum. In the ensuing battle, 400 rebels were killed, according to Sudanese sources, and so were 100 members of the Sudanese security forces. In addition, there were numerous deaths among civilians.

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Sudan blamed the attack on neighboring Chad, and has ended diplomatic relations with Chad. Chad denied the claim, and responded by closing its border with Sudan, and suspending economic ties.

Sudan and Chad had signed a mutual non-agression treaty on March 13, in a ceremony that brought smiles of relief from attending officials from the U.N. and other countries. Unfortunately, the treaty has turned out to be a worthless piece of paper.

The JEM attack has brought a "what were they thinking?" attitude from observers and journalists, with the the NY Times calling it a "quixotic attack."

The article quotes one analyst as asking, "What was JEM trying to do? It’s hard to imagine they thought they could capture the capital with 50 to 100 cars." Another analyst referred to the attack as "suicidal."

But from the point of view of Generational Dynamics, the attacks makes plenty of sense, because it brings Khartoum and northern Sudan into play in the Darfur war. JEM would view the "Arabs" as having been sitting fat and happy in Khartoum, directing the war from afar, but not paying any consequences, and making Khartoum suffer some consequences will have a significant effect.

Generational Dynamics concerns itself with the attitudes and behaviors of large masses of people, entire generations people. Saturday's attack is panicking many people in Khartoum, and this cannot help but have a significant effect. One report says that the capitals "false sense of safety" has been burst, and quotes a resident as saying, "So if they [the Sudanese army] already knew that rebels were advancing why did they not stop them? They were willing to put our lives at risk? This could have been a blood bath."

Brief generational history of Sudan

Sudan's name in Arabic means "land of the blacks," which gives an idea of the Arab view of the nature of Sudan.

For the purposes of Generational Dynamics, it's easiest to view Sudan as three separate regions, on three separate generational timelines:

I've discussed the generational history of the Darfur war several times on this web site. It's worth reviewing because the media is totally oblivious to this history:

Aftermath of the attack on Khartoum

We cannot read the mind of the JEM leaders who took perpetrated the attack, but looking at the generational history that we've presented, it's clear that the attack was anything but "quixotic."

We've seen the concept of "regeneracy" applied in two different places: the arrest of the Darfur Africans (farmers) by the Janjaweed militia in April 2002, and the Africans' attack on the police station on February 26, 2003. The first of these two events served to cause a regeneracy of civic unity among the "Africans," while the second did the same among the "Arabs" (the Janjaweed militia).

Although not enough time has passed to be certain, it seems likely that the May 10 attack on Khartoum will serve to trigger a regeneracy of civic unity among the residents of Khartoum and Northern Sudan. If this happens, and we probably will know in a few weeks, it would be a highly significant change to the war.

Generational Dynamics examines the attitudes and behaviors of large masses of people, entire generations of people, and a regeneracy in Khartoum would have an enormous effect, probably including some of the following:

It may or may not have been the objective of the JEM leaders to bring about this kind of outcome, but since we seem to have no idea what other outcome they were intending, something like this was probably their intention.

What makes this situation particularly significant is that it changes the nature of the Darfur war itself with respect to the rest of the world.

Up until now, the Darfur war was isolated within the African continent, in particular black Africa (also called sub-Saharan Africa). The involvement of Khartoum and Northern Sudan in the Darfur war is certainly bound to be noticed by the Egyptians.

Egypt's government is being challenged by the Muslim Brotherhood, a 70-year-old radical Islamist group that spawned Hamas and Osama bin Laden. A conflict between rebels and the Sudan government in Khartoum could provoke a similar conflict within Egypt, and the two conflicts could become linked.

This is only a possibility, of course, far from a certainty. But it's the kind of thing that happens to countries in generational Crisis eras, as we approach the Clash of Civilizations world war. At any rate, after the May 10 attack, we can no longer be absolutely certain that the Darfur civil war is an isolated conflict that will never spread to the Mideast. As far as the Mideast is concerned, Darfur and Khartoum are now in play. (14-May-2008) Permanent Link
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China requests foreign assistance for earthquake relief - cash only

It's likely that tens of thousands of people were killed on Monday by an earthquake in China's Sichuan province. About 9,000 deaths have been reported so far. Dozens of students were killed in the collapse of a middle school, and hundreds more students were buried alive.

The quake was extremely potent, measuring 7.9 on the Richter scale, and was clearly felt 930 miles away in Beijing. Sichuan province's capital city, Chengdu, has over 10 million people, and was only 57 miles away from the quake's epicenter, and so the casualty count is expected to rise sharply by the time everything is cleaned up.

Jaime Florcruz, reporting from Beijing <font face=Arial size=-2>(Source: CNN)</font>
Jaime Florcruz, reporting from Beijing (Source: CNN)

Offers of assistance are already pouring in. The U.K. Foreign Secretary said that Britain "stands ready" to help China deal with "the loss of life and devastation in China."

In fact, CNN's Beijing news correspondent, Jaime Florcruz, reports that China is welcoming foreign assistance:

"The Chinese are now saying that they're hoping that they can get foreign aid. They say they welcome foreign assistance. However, they prefer that it be sent in cash instead of in relief goods, because they are finding it hard to deliver them to the most needy places."

By requesting cash only, the Chinese are apparently taking a cue from their pals in the Burma (Myanmar) military junta, who are preventing most foreign aid from reaching the victims of cyclone Nargis.

Aw heck, let's just borrow $10 billion or so from the Chinese, and then give it back to them as foreign assistance to earthquake victims. (12-May-2008) Permanent Link
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Burma (Myanmar) junta is turning a natural disaster into a criminal catastrophe

Could it affect the Beijing summer Olympics?

Cyclone Nargis came ashore in Burma (Myanmar) on Saturday, May 3, bringing along a 12-ft high tidal wave that washed over the lowland rice paddies up to 20-25 miles inland in the Irrawaddy delta, killing up to 100,000 people:

Burma - path of cyclone Nargis.  Incredibly, its path was the full length of the most vulnerable regions of the country. <font face=Arial size=-2>(Source: Der Spiegel)</font>
Burma - path of cyclone Nargis. Incredibly, its path was the full length of the most vulnerable regions of the country. (Source: Der Spiegel)

Rangoon (Yangon) is a city of 6 million people, and is Burma's largest city and former capital. There, tree trunks flew through the air, light poles snapped in two, and windows were smashed in most buildings.

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Burma (Myanmar) junta is turning a natural disaster into a criminal catastrophe: Could it affect the Beijing summer Olympics?... (11-May-2008)
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The fertile Irrawaddy delta region is extremely densely populated. It has (or had) only 5% of Burma's landmass, but almost 50% of its population. Some 60 delta cities and towns, with millions of residents, were washed over by the tidal wave, and disappeared completely, leaving the landscape littered with bodies.

Millions of refugees and residents are packed into cities and towns on higher ground with no available food, and with drinking water polluted by the storm. Infectious diseases are beginning to spread, and the charity Oxfam is saying that as many as 1.5 millions lives are threatened in a potential "public health catastrophe."

I've dwelled on these morbid facts because of the impression those facts are making on the entire international community. If a "public health catastrophe" does occur, then the Burma junta will be held responsible, and that could even extend as far as saying that they're criminally guilty of genocide.

The facts on the ground are horrific, but from the point of view of Generational Dynamics the important issue is what effect they'll have on the attitudes and behaviors of the large masses of people in countries around the world.

Within Burma itself, there will undoubtedly be a great deal of anger. The obvious comparison is to the anger that followed the flooding of New Orleans by hurricane Katrina -- and in that case there was a lot of property damage, but not a huge loss of life.

Nonetheless, as I wrote a few days ago, Burma is about halfway into a generational Unraveling era, and any violence that begins would probably fizzle out fairly quickly. The only thing that would change that is if the cyclone had somehow been fairly selective in the delta in killing most people over 45, thus destroying the generational constellation that existed before the cyclone. There is some evidence that most of the dead are children and elderly, leaving mostly young adults as the survivors behind. However, it's unlikely that will be enough to spur more than brief violence, if any.

Outside of Burma, the anger is likely to grow as well, and it seems to me that there's a good chance that the Burma junta will be charged with genocide. Let's take a look at some of the charges that will be brought:

Nobody is openly accusing the junta of much right now, because the hope is that they'll allow more humanitarian aid in. But once the immediate crisis is over, the level of condemnation will be enormous, especially if the number of deaths keeps rising.

The tsunami that struck southeast Asia in 2004 caused 220,000 deaths. The number of deaths was held down by the quick humanitarian response from America, Europe, other countries, and numerous humanitarian agencies.

Because of the Burmese military junta's purposeful actions, continuing to this day, the junta will be accused of criminal genocide by many human rights groups, and probably by many governments. In fact, it would surprise me if exactly that charge is not brought by the U.S. Congress and the European Parliament.

But let's face it: Nobody really much cares what the Burmese military is accused of. That would be off the front pages very quickly.

The problem is that China is supporting Burma's refusal to allow aid in. China has a policy of "no interference in the internal affairs of another country." China thus rejects international criticism of

as "interference in the internal affairs" of those governments, and not to be permitted. China has repeatedly blocked U.N. Security Council actions condemning violence or genocide in other countries because doing so would "interfere in the internal affairs" of another country.

If a humanitarian catastrophe develops in Burma, with the deaths of a million people or more, then China will receive a good deal of blame.

This week, Beijing blocked a proposal to even have the Security Council briefed on the Burma situation. "We should take full consideration of Myanmar's willingness and sovereignty," Foreign Ministry spokesman Qin Gang said.

If Burma's junta is charged with criminal genocide by blocking aid from reaching cyclone victims, and if China is suspected of having helped Burma block the aid, then China's opponents will have another human rights accusation to wield.

Such accusations could take place prior to or during the summer Olympics, creating a new embarassment for China, and increasing nationalism among the Chinese public.

From time to time, I like to emphasize the role of Chaos Theory in Generational Dynamics. Most people have heard of the concept that a butterfly flapping its wings in China might (or might not) cause a chain of events that would lead to a hurricane in North America.

Well, perhaps some butterfly somewhere flapped its wings and caused cyclone Nargis to blow over Burma. In the worst case scenario we outlined, there might be over a million deaths, charges of genocide for the Burma government, and charges of complicity in genocide for the Chinese government, just as the summer Olympics is approaching.

A little butterfly's flapping wing may be the cause of all that. And yet, "cause" is the wrong word. The right word is "trigger." Generational Dynamics identifies trends that must occur sooner or later, when the right trigger occurs. Thus, the butterfly may have triggered the charges of complicity in genocide for the Chinese government, at the time of the Olympics.

Well, I must be in a weird mood today to have written this somewhat whimsical description of one set of possible consequences of cyclone Nargis. Undoubtedly Burma's ruling military junta is hoping that the furor over the cyclone will just die down and go away. That COULD happen, provided that they abandon their intransigient blocking of foreign aid. As things stand now, it looks like a heck of a lot of people are going to die, and they will be blamed for it. (11-May-2008) Permanent Link
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Hizbollah appears to be staging a coup in Lebanon

As street gunfights spread, observers fear total civil war - which is impossible.

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Hizbollah gunmen seized control of pro-government areas of west Beirut on Friday, after several days of street gunfights. Observers claim that the battles push the nation "dangerously close" to all-out civil war between Shia groups, led by Hizbollah, and Sunni groups, led by the government.

From the point of view of Generational Dynamics, a civil war in Lebanon is impossible at this time, because the country is in a generational Awakening era. The situation is similar to the "civil war" issue in Iraq for the last few years: any violence that appears to be a civil war will fizzle fairly quickly, and dissolve into strident political battles.

Still, the mere threats of a new civil war that might be like the bloody civil war that occurred in the 1980s form a major part of the political fabric in Lebanon today.

Thus, we get ultra-dramatic reports like the following from Times Online:

"Gunbattles erupted on the streets of Beirut yesterday as a general strike turned into a violent confrontation between the Government and the opposition, led by the militant Shia group Hezbollah.

The rattle of automatic weapons and the crump of exploding rocket-propelled grenades echoed around the streets of the Lebanese capital as thick plumes of smoke rose from barricades of burning tyres.

In scenes grimly redolent of the 1975-1990 civil war, gunmen were seen inching down empty streets and firing rifles at windows to a backdrop of burning cars. ...

But it was overshadowed by the worsening crisis between the Western-backed Government and Hezbollah, which many Lebanese fear is about to reach a showdown after 16 months of political gridlock.

“This is a turning point. There can be no more cohabitation between the Government and the opposition. All trust is gone,” said Amal Saad Ghorayeb, a Lebanese political analyst and expert on Hezbollah."

But in fact, this analysis is all wrong. The most likely continuing scenario is that the political gridlock WILL continue, and there WILL continue to be "cohabitation." In a scenario where Hizbollah takes over the government, the political battles and sporadic street fights would continue, except that the roles of government and opposition would be reversed.

The event triggering the current crisis was certainly startling to me. On Tuesday, the government demanded that Hizbollah shut down its telecommunications network, and Hizbollah Secretary General Hassan Nasrallah called this demand an "act of war" against Hizbollah.

I get the impression that this telecommunications network is extremely sophisticated. Hizbollah used it in the summer 2006 war with Israel to maintain communications among dispersed Hizbollah forces, and provide real-time intelligence on Israeli activities. Recently, Hizbollah has been using the network capabilities to monitor port and airport activities, as well as some roadways.

From the point of view of the rest of the world, what's most important about the political battles in Lebanon is their effect outside of Lebanon, especially among the Palestinians and Israelis. We can only guess at the impact: A political gain for Hizbollah would make the Israelis more nervous than they already are, and would strengthen Iran's prestige; but a political loss for Lebanon's Sunnis would probably weaken Hamas.

It was 60 years ago this week that the state of Israel was created, following the partitioning of Palestine by the United Nations. There's an Alice in Wonderland feeling to Israel's 60th anniversary. Today's frightened Israelis are celebrating the May 8 anniversary, but are wondering what kind of future they'll have. But if you go through the looking glass, there you find the Palestinians, many of whom are contemplating war with Israel, commemorating the 60th anniversary of Al Naqba - "Catastrophe Day" - next week on May 15. (9-May-2008) Permanent Link
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Georgia: "Very close" to war with Russia

EU and American officials are expressing alarm at the escalating tensions in the Caucasus region.

The Caucasus Mountains run from the Black Sea to the Caspian Sea
The Caucasus Mountains run from the Black Sea to the Caspian Sea

Russia is deploying several hundred toops into Abkhazia, the recessionist province of Georgia. These troops are in addition to the 1500 or so already deployed.

Georgia has several thousand troops deployed on the border of Abkhazia.

Both sides claim that they are not preparing for war, but there are many possible miscalculations on either side that could trigger a military confrontation.

The Abkhazians form a distinct ethnic group that differs from the Georgians, and the Abkhazians take pride in the Kingdom of Abkhazia that existed from roughly 830 to 1020 AD. In the millennium since then, power and control was passed around -- sometimes the Abkhazians controlled the region, sometimes the Georgians, sometimes the Russians. So it's not surprising that the Abkhazians today don't easily accept domination by the Georgians. In fact, the Abkhazians were opposed to the breakup of the Soviet Union, while the Georgians favored it.

On the other hand, Georgia insists that Abkhazia is part of Georgia, not part of Russia.

Two other provinces, South Ossetia and Ajaria, have also indicated that they want to secede from Georgia. The secession of Abkhazia would set a precedent for the secession of other other two provinces as well.

Russia points out that a precedent has already been set: It was set in February of this year, when the Europe and the West supported the secession of Kosovo from Russian-backed Serbia in the Balkans.

The following 3-minute video from Russia Today presents mostly the Russian view of the situation, but also contains statements from Georgian officials:

The Caucasus mountain region is one of the most dangerous regions in the world, and has been the site of many genocidal crisis wars.

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

There are many ethnic groups in this region, but possibly even more important than that is that the Caucasus is one of the major fault line borders between the Orthodox and Muslim civilizations.

People who are new to this web site may be unaware that Eastern Europe is very different from Western Europe, and is (generally speaking) on a completely different generational timeline. World War I was a crisis war for Eastern Europe (but not Western Europe), while World War II was a crisis war for Western Europe (but not Eastern Europe).

Second, Western Christianity is very different from Orthodox Christianity, which is centered in Greece and Russia. Most important is that the greatest and bloodiest wars fought over the last millennium have been between the Orthodox and Muslim civilizations.

The map above shows the three major regions on the Orthodox/Muslim fault line: The Balkans, the Crimea, and the Caucasus.

The Caucasus has enormous strategic importance for many reasons, not the least of which is that oil pipelines run through it from Russia to the Black Sea.

Other trouble spots in this region include the following: Russia's ten year old war with Chechnya, which has spilled over into Ingushetia and Dagestan; Georgia's conflicts with three separatist provinces, South Ossetia, Abkhazia and Ajaria; and Armenia's claim to the Nagorno-Karabakh region of Azerbaijan.

From the point of view of Generational Dynamics, the Caucasus is one of the most dangerous regions on earth, and Generational Dynamics predicts that the Clash of Civilizations World War will have a major component in the Caucasus region. (8-May-2008) Permanent Link
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Cyclone Nargis could trigger violence in Burma (Myanmar)

Burmese generals are placing obstacles in the way of international aid.

Burma - Satellite photo before (April 15) and after (May 5) Cyclone Nargis <font face=Arial size=-2>(Source: BBC)</font>
Burma - Satellite photo before (April 15) and after (May 5) Cyclone Nargis (Source: BBC)

The statistics from last week's Cyclone Nargis are staggering: Over 100,000 deaths, and a further 70,000 people missing, up to 40% of them children. These figures challenge the 2004 tsunami that killed 220,000 people in Southeast Asia.

The cyclone itself cause less damage than the storm surge it generated. The 120 mile per hour winds created a 12-ft high tidal wave that that swept away entire villages, often killing everyone, up to 20-25 miles inland.


The satellite photos above show Burma below and after the cyclone. The tidal waves washed over the low-lying rice paddies in southern Burma.

Much of the rice crop, which was due shortly to be harvested, was lost. This is a disaster all by itself. The price of rice has already more than doubled in the last year, increasing 50% just since January. The loss of much of Burma's rice crop has caused worldwide rice prices to increase every day since the cyclone, up 2.4%.

The United States, Europe, Australia and other countries are trying to launch a massive aid program, such as the one that occurred after the 2004 tsunami.

Unfortunately, Burma's military junta is placing roadblocks in the way of aid, by preventing humanitarian organizations from reaching the people who are starving.

People in helicopters over the affected region "saw the dead bodies from the helicopters, so it's quite overwhelming. The impact of the disaster could be worse than the tsunami because it is compounded by the limited availability of resources on top of the transport constraints."

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This situation has the potential for allowing mass starvation, as well as water-borne infectious disease from wells polluted by the tidal wave.

This comes after Burma was warned 48 hours in advance of the coming cyclone, and did nothing to prepare the people for it.

From the point of view of Generational Dynamics, this disaster, as horrific as it is, has little chance of causing any fundamental changes in Burma's repressive, dictatorial society.

Last year, when the massive protests broke out in Burma, I wrote in "Burma: Growing demonstrations by the '88 Generation' raise fears of new slaughter" that any protests and demonstrations would fizzle quickly, because Burma is in a generational Unraveling era. And that's exactly what happened, as was apparent within a few weeks.

One could hope that this disaster might bring a change to the violently repressive regime, but that's extremely unlikely until around 2018-2020, because of Burma's current position on its generational timeline.

The only way that something could change is if the cyclone caused some kind of generational catastrophe. For example, imagine that it was mostly people 45 years and older who were killed, and younger, stronger people were able to escape. Since it's the survivors of the previous crisis war that inhibit the next crisis war, the disappearance of those people in a catastrophe could cause unexpected violence.

However, that kind of thing is very unlikely. However much further suffering Burma's military junta inflicts on the people, they'll continue to tolerate it for another decade or so. (8-May-2008) Permanent Link
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Price/earnings ratios continue to surge on lower corporate earnings

The dramatic trend that began last month gathers strength.

In a story that's becoming increasingly familiar, airheaded investors are pushing up stock prices despite falling corporate earnings. The reason appears to be the conviction, despite mountains of evidence to the contrary, that the credit crisis is over and the credit bubble is returning.

The result is that investors, who had been holding price/earnings ratios fairly constant for four years, have suddenly pushed them sharply upward. It's an amazing development.

Here's last Friday's version of the graph that appears on the bottom of this web site's home page:

S&P 500 Price/Earnings ratio and S&P 500-stock Index as of 2-May-2008. <font face=Arial size=-2>(Source: MarketGauge ® by DataView, LLC)</font>
S&P 500 Price/Earnings ratio and S&P 500-stock Index as of 2-May-2008. (Source: MarketGauge ® by DataView, LLC)

After years of keeping the price/earnings ratio constant at 18, the ratio has been shooting up each week for the last 3 weeks, and has now reached 22. (May 18 - Correction)

Now, in these bubblehead days, that doesn't seem so high, but the historic average is around 14, and the index has been well above average since the dot-com bubble began in 1995. By the Law of Mean Reversion, the index is going to fall to about 5 for a number of years, once the credit bubble fully bursts. Instead, the index is rising again, meaning that the fall is going to be even worse. Icarus is flying closer and closer to the sun.

The reason that the price/earnings index is rising is because corporate earnings estimates keep falling. Each week I post the table of corporate earnings estimates, based on figures from CNBC Earnings Central supplied by Thomson Reuters. Here's the latest version:

  Date    1Q Earnings estimate as of that date
  ------- ------------------------------------
  Oct 23:             +10.0%
  Jan  1:              +5.7%
  Feb  6:              +2.6%
  Feb 29:              -1.1%
  Mar  7:              -4.3%
  Mar 14:              -7.8%
  Mar 21:              -7.9%
  Mar 28:              -9.3%
  Apr  4:             -12.2%
  Apr 11:             -14.1%
  Apr 18:             -14.6%
  Apr 25:             -14.1%
  May  2:             -15.0%

I said last week not to be surprised if the first quarter earnings estimates start falling again, and they seem to be doing so, though not far. Still, the fall in earnings estimates, combined with last week's increase in stock prices, has pushed up price/earnings ratios to the highest value since 2004, a truly remarkable development.

The last few days, the euphoria among investors has been palpable.

Investors experienced a big gush of endorphins on Friday, when the monthly unemployment report revealed that the economy had lost "only" 20,000 jobs in April, when economists had predicted a lost of 80,000 jobs.

Another factor, the Microsoft/Yahoo merger, was highly euphoric to investors, because it appeared to signal a return to the time when the credit bubble was being boosted by merger and acquisition (M&A) activity. The collapse of that merger over the weekend certainly must have depressed investors, perhaps explaining Monday's selloff.

A lot of the euphoria is based on the widespread belief the financial crisis is over. This view was buttressed by Thursday's report from the Bank of England, even though the conclusion is contradicted by the bank's own data.

I'm not the only one who's noticed this insanity. A commentary by credit derivatives expert Satyajit Das contains the following chart that shows how market data is interpreted by today's analysts:

  Market            Analyst Call
  ------            ------------------------
  Weak data         Fed eases, stocks rally.
  Strong data       Strong economy, stocks rally.
  Consensus data    Lower volatility, stocks rally.
  Bank loses
      $8 billion    Bad news all out of the way, stocks rally.
  Oil price up      Good for energy producers, stocks rally.
  Oil price down    Good for consumers, stocks rally.
  US dollar down    Good for exporters, stocks rally.
  US dollar up      Lower inflation, stocks rally.
  Inflation up      Good for commodities and asset prices, stocks rally.
  Inflation down    Fed eases, stocks rally.
  Climate change    Soft commodities up, stocks rally.
  World ends        Good for disaster recovery companies, stocks rally.

According to Das, most analysts seem to share Eleanor Roosevelt’s view that: "The future belongs to those who believe in the beauty of their dreams."

Incidentally, I've written about Satyajit Das's views before, in an article posted last October.

What really surprises and shocks me is that Warren Buffett has joined the kool-aid crowd.

"The worst of the crisis in Wall Street is over," said Warren Buffett to CNBC and to Bloomberg.

This is a big change since 2006, when he said:

"Speculators are like Cinderella at the ball having a great time, but at midnight everything turns to pumpkins and mice. As midnight approaches the party gets to be more fun, and everyone thinks they'll get out before midnight. The problem for Cinderella is that there are no clocks on the wall."

It's an even bigger change than Buffett's attitude in 2003, when Buffett said that stocks were significantly overpriced -- with the Dow Industrials index at 8,000!

Even more startling was Friday's announcement that first quarter profits of Warren Buffett's Berkshire Hathaway fell by 64% because of $2 billion in losses from investments in derivative contracts.

This is the person who called derivatives "financial weapons of mass destruction." It was only a year ago, in May 2007, when he said this:

"The introduction of derivatives has totally made any regulation of margin requirements a joke. I believe we may not know where exactly the danger begins and at what point it becomes a super danger. We don't know when it will end precisely, but ... at some point some very unpleasant things will happen in markets."

Even worse, according to one commentator, Buffett invested in derivatives "in one of the most simplistic and historically dangerous, indeed devastating, ways."

And so, Warren Buffett used to have a lot of common sense. I don't know how to interpret these recent announcements except to wonder if Buffett has completely lost his mind.

Here's a little black humor.

You may recall that in August of last year, depositers mobbed Countrywide Bank in California to withdraw their deposits, in the face of rumors of bankruptcy. Countrywide Bank was owned by Countrywide Financial Corp., the biggest home-loan company in the nation. Countrywide had practiced the most dangerous and simplistic mortgage lending practices, and was in serious trouble.

In January, in a move that I called "throwing good money after bad," Bank of America announced that it would acquire Countrywide.

Well now Bank of America appears to be changing its mind, at least according to some rumors. According to one analyst, "Countrywide's loan portfolio has deteriorated so rapidly that Countrywide currently has negative equity and the acquisition will be a drag on Bank of America's earnings."

Did you get the words "negative equity"? That means that Countrywide is now worth less than nothing. Theoretically, the stockholders should PAY YOU to take it off their hands.

How could Countrywide be worth less than nothing? Well, we can figure out what happened. Countrywide's standard practice was to offer 100% loans to home buyers, and now the vast majority of those homes are losing value. Therefore, the loan-to-value (LTV) ratios are now greater than 100%.

In other words, it you put together all the homes in Countrywide's entire loan portfolio into a big pile, then the total value of all those homes is smaller than the amount of money that Countrywide borrowed in order to make all those 100% loans. Putting it all together, Countrywide is worth less than nothing.

Martin Feldstein, president of the National Bureau of Economic Research <font face=Arial size=-2>(Source: CNBC)</font>
Martin Feldstein, president of the National Bureau of Economic Research (Source: CNBC)

On Tuesday morning CNBC interviewed Martin Feldstein, president of the National Bureau of Economic Research, who said the following:

"I'll tell you what worries me. We saw house prices overshoot by 60% relative to costs of building and relative to rents. I worry about the possibilty that they will keep falling, that they will spiral downwards, in the same way that they went much too high, they could go much too low. And if that happens, then we're going to see individuals feeling a lot poorer, cutting back on their spending, defaulting on mortgages, and we're going to see the holders of those mortgages see those assets, their capital being cut, and therefore their ability to make loans being cut."

In other words, Feldstein is predicting a panic, causing housing prices to fall much farther than they would have if there had never been a housing bubble. In fact, that's exactly what the data says is going to happen, as I said a week ago in "Home prices fall by the most on record."

But then Feldstein went on to say that regulators should prevent this from happening:

"So I think that there is a role to prevent this kind of downward overshooting in house prices. Prices have to fall somewhat from where they are today. But I think the danger is we have so many loan to value ratios greater than 100%, and those individuals are going to have a very strong temptation to simply turn in the keys and walk away. Because there's nobody to negotiate with. These mortgages have been securitized to a point where they cannot simply sit across the table from their mortgage originator from their bank and work it out."

I can't imagine why Feldstein believes that any regulator could possibly stop this downward spiral. As far as I know, no regulator has ever been able to stop a panic.

And so, putting all this together, we have giddy investors pushing price/earnings ratios up at a time when the news keeps getting worse. These are truly interesting times.

I've estimated that the probability of a major financial crisis (generational stock market panic and crash) in any given week from now on is about 3%. The probability of a crisis some time in the next 52 weeks is 75%, according to this estimate. (6-May-2008) Permanent Link
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Annual progress report on the Generational Dynamics web site.

Generational Dynamics web site traffic is growing.

Generational Dynamics web site -- average daily web pages and distinct user sessions -- not including search engine requests -- August 2003 to April 2008
Generational Dynamics web site -- average daily web pages and distinct user sessions -- not including search engine requests -- August 2003 to April 2008

During the last year, the traffic to this web site has been growing steadily.

The adjoining graph shows that traffic to this web site has almost doubled in the last year. It was almost zero in 2003.

Based on this data and on web site log files, I estimate that there are about 5 or 6 thousand regular readers who check in once a day or once every few days, though of course I don't know who you are. An average person coming to this site reads 3.1 pages during his visit.

Incidentally, I have no idea what caused that bump up in mid-2005, or the bump down in mid-2007.

The web site now has over 1,000 articles, totalling more than 1.7 million words. These articles contain specific Generational Dynamics predictions, all of which are true or are trending true. None has been proven false.

(See "List of major Generational Dynamics predictions" for more information.)

I've also recently added the "Country Studies" section of the web site, something that's been a dream of mine for a long time. The information for each country is already pretty useful, since it contains pointers to a number of other resources, but what I'd really like to accomplish is a generational history of each country. I'll be working on those this year.

(Click here for Index to Generational Dynamics Country Studies)

The country analyses that I've posted in the web log articles have been getting increasingly precise. As I look back at some of the things I wrote in 2003 and 2004, the predictions were right on target, but a lot of the text had rough edges. During the last year, in analyses of Japan, Pakistan, Iran, China, Malaysia, Burma, Kenya, Zimbabwe, and other countries, the generational histories and analyses have become much more nuanced.

This is all thanks to the fact that generational theory itself has advanced quite a bit in the last year, with a better understanding of Awakening and Unraveling eras. We also saw the discovery of a number of examples of the mind-blowing 58-year hypothesis, which shows how catastrophic events that occur to a generation of children reverberate in policy 58 years later, when those children reach age 63 and above.

I'm really quite excited about what I've accomplished in developing generational theory to this extent. I've accomplished things that, ten years ago, I would have insisted were mathematically impossible. I've been working on this obsessively now for six years, and it's a large complex subject. If I were to teach a college course on it, it would take a couple of semesters to go through all the basics, and then there would be all kinds of possibilities for further research at the undergraduate or graduate level. It's also an interdisciplinary subject, involving history, mathematics, economics, macroeconomics, system dynamics, chaos theory, complexity theory, and even the theory of evolution. I just wish that the news weren't so bad.

Applying new developments in generational theory to today's world, we've been able to show where suicide bombers come from and how al-Qaeda motivates them. Al-Qaeda's major tool is the internet, which permits radical Islamist terrorists in Pakistan's tribal areas to develop "Prophet/Hero" relationships with young Muslims around the world, directing them to commit "altruistic suicide" through bombings.

And lastly, we can't forget the deepening financial crisis. This is one of the few web sites in the world that's told you exactly what's going on. And it's the ONLY web site in the world that has, since 2003, accurately told you what's coming.

In fact, when you put together the financial and country analyses, this is the only web site in the world that tells you comprehensively what's going on in the world and what's coming. I truly believe that this web site provides a public service unlike anything else in the world, and I take my obligation to provide you with accurate, credible information and predictions very seriously.

As I said above, I know that there are a lot of you reading this web site regularly, though I don't know who you are. But I do know something about you, based on the e-mail messages I get.

The people who read this web site regularly want to know what's going on in the world so that they can prepare for it.

As I always say: You can't stop what's coming, any more than you can stop a tsunami, but you can prepare for it by running to higher ground. Treasure the time you have left and use it to prepare yourself, your family, your community and your nation.

I'm looking at different alternatives for how to permit publicly posted comments and debate. One issue is that you have to deal with abusers, haters, nutjobs, viagra salesmen, porn merchants, trolls, spammers, and other undesirables. You'd be amazed by how many of these I get already from the "Comment" page on this web site. It doesn't matter now since I simply delete them, but if they were posted automatically it would be a problem.

In the meantime, I still encourage people to send me comments by e-mail or the "Comment" page. I'm still managing to keep up with all e-mail questions sent to me, though it sometimes takes a few days for me to get back with a response, depending on volume of e-mail. So if you have a question or comment or correction or complaint, by all means send me an e-mail message, or use the "Comment" link at the top of this page. (6-May-2008) Permanent Link
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Bird flu spreading rapidly through birds in South Korea

Despite the culling (killing) of over 5 million birds last month, highly pathenogenic (HP) H5N1 bird flu continues to spread in South Korea, and has reached six of the nine provinces. At the beginning of April, reported outbreaks had reached record levels.

Although not widespread, HP H5N1 bird flu has also been found in Japan, and also in the far eastern region of Russia. What's significant about these findings is their proximity to Alaska.

H5N1 has been confirmed in South Korea in three of the last five seasons. What's different this year is that H5N1 is being found for the first time in late spring, when birds are migrating to the north. This raises the possibility that H5N1 will migrate across into Alaska, from where it can spread south into Canada and the United States.

It was the 2005-2006 season that bird flu spread like wildfire across Asia, into the Europe, the Mideast and Africa. It was expected that it would soon spread to North America via the Atlantic flyways, but miraculously that apparently hasn't happened.

The U.S. Fish and Wildlife Service isn't taking any chances though, and ten Alaskan villages are taking part in an effort to collect 3,000 swab samples from birds, in order to identify any HP H5N1 before it has a chance to spread.

Taking swab samples in this way, and culling birds from regions where bird flu might spread, is the best method available for preventing the further spread of bird flu.

However, this is not what's happened in eastern India. In January, I posted and article saying that bird flu was spreading rapidly through birds in West Bengal in eastern India.

Now, three months later, West Bengal is still plagued with spreading of bird flu.

Although almost 5 million birds have been culled, the U.N.'s Food and Agriculture Organisation (FAO) is criticizing West Bengal for not taking appropriate precautionary measures.

It seems that a large section of the rural population of West Bengal is dependent on poultry farming to earn their livelihood, and so they resist culling or cooperating with the government. This is a particular problem at a time when global food prices are skyrocketing. The same is true in the neighboring country of Bangladesh.

This permits the virus to continue spreading, and it's now been found in in another Indian province, Tripura.

This kind of uncontrolled spread among birds is the kind of environment that's most likely to give rise to a genetic change that allows H5N1 to pass easily from human to human. That would give rise to a worldwide bird flu pandemic.

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

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

I once again strongly urge my readers to prepare for an H5N1 pandemic or for any kind of emergency (think of hurricane Katrina) by stocking up on food and water and currency and batteries for the entire household to live on for 2-3 months. This may cost a thousand dollars per person, but it's not wasted money since you can always eat the food later if no emergency occurs. Get canned or dried food that can last a long time in storage, and get a large container for storing water. Keep in mind that stored water becomes impure with time, so you'll also need some purifying tablets or bleach to kill bacteria in the water when the time comes. Finally, get whatever medicines you'll need to take care of yourself and your family for a long period of time. (5-May-08) Permanent Link
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Zimbabwe's "Liberation Hero" president Robert Mugabe continues to destroy his country

With a 150000% inflation rate, torture, and destruction of property, this once-wealthy country has become a case study in dictatorship through destruction and terror, reducing this moderately wealthy country to one of the poorest in the world.


Robert Mugabe's story as president of Zimbabwe is one of the most incredible stories on the planet, because his destruction of the country has been so thorough and so rapid.

Zimbabwe has been a major international story for the last month because presidential and parliamentary elections were held on March 29, and it's widely believed that the opposition party won the election, ending Mugabe's 29 year hold on the presidency. However, Mugabe directed that all ballots be impounded, leading many to believe he was arranging to change the election results.

It was only Friday, several weeks after the election, that the official election results were released. According to the official results, the opposition candidate, Morgan Tsvangirai, won a plurality of the votes in the 3-party race, but did not win a majority. This means that a runoff election is required.

At this writing, Tsvangirai and his Movement for Democratic Change (MDC) party are still deciding whether to even participate in the runoff election. Opposition party officials have been tortured and jailed since March 29, and it's widely believed that Mugabe will rig the runoff election to guarantee victory for himself.

Although foreign media reporters from BBC, CNN and other international news organizations are forbidden to even enter Zimbabwe, surreptitious reports have been leaking out. Here's an al-Jazeera video of a news report about Mugabe's political opponents who have become victims of beating and torture.

Depending on your political point of view, the current political struggle over the March 29 elections in Zimbabwe is based on (a) a violent dictator desperately trying to hold on to power; or (b) intervention by imperialist colonial Western powers in the internal affairs of Zimbabwe.

I'm personally heavily on the side of (a), but from the point of view of Generational Dynamics, what's going on now is a continuation of a tribal fault line struggle between the market-dominant minority Ndebele tribe and the disadvantaged majority Shona tribe. The fault line was established in 1837, in a crisis war where the Ndebele massacred the Shona in what is now Zimbabwe.

To make matters worse, the two sides are aligned with international fault line powers, and have been so since the 1950s. The Shona have been aligned with the Chinese communists, while the Ndebele were first aligned with the Russian communists, and now the West in general.

Generally speaking, the alignments are as follows:

And so, Mugabe's drive to remain in power goes beyond personal ambitions: It's a desire of the Shona to remain in power, versus the Ndebele. It's an ethnic issue, not a personal issue.

Mugabe's destruction of Zimbabwe

As recently as the 1999, Zimbabwe was a breadbasket of Africa, exporting up to 500,000 metric tons of surplus food. By 2003, Zimbabwe was so starved that it had to receive 500,000 metric tons in food aid from the U.N.'s World Food Program.

What happened during those three years was a Marxist socialist "land reform" program by Robert Mugabe that confiscated 4,500 white-owned commercial farms and redistributed the property to loyal supporters of his Zanu-PF party -- i.e., members of his own Shona ethnic group.

Many of the new owners were inexperienced in running large farms, and food production fell dramatically, as only a few hundred of the confiscated farms continued to function normally. Harvests of food staples plummeted by as much as 90%, livestock herds dwindled and production of the main cash crop, tobacco, slumped badly.

The results have been dramatic, and show how it's possible for one person to destroy a country single-handledly. A formerly well-fed country now has rampant 80% poverty, and the inflation rate has gone from 700% to 1000% to 10000%, and now it's at 150000% and still rising. Tony Hall, who was the U.S. ambassador to the U.N.'s Food and Agriculture Organization and the WFP said that Mugabe "has committed crimes against humanity."

As a side issue, what has been a disaster for Zimbabwe has been a boon for Nigeria. The white farmers whose land was confiscated in Zimbabwe were wooed by Nigeria to settle there. Thousands of acres of formerly unused Nigeria land is now being tilled by farmers who left Zimbabwe.

Zimbabwe's violent Awakening era

The yin and yang of generational theory are Crisis wars and Awakening eras. Historians study wars a great deal, but Awakening eras as a critical passage through which all societies throughout history must pass are a relatively new discovery, and are a crux of generational theory. For example, see my article on William G. McLoughlin and American Awakenings to see how important they've been to American society.

And so each time we have an opportunity to study an Awakening era that presents unique features, it gives us an opportunity to add to generational theory.

The characteristic feature that unites all Awakening eras is what in the 1960s we used to call the "generation gap." The protests and demonstrations that go on during an Awakening era are never really protests against policies (war, racism, whatever) so much as they are protests by the young against their parents' beliefs, or against their parents themselves.

Zimbabwe's war of independence ended in 1979, and so the Awakening began roughly in the late 1990s. Why haven't there been student riots and demonstrations?

In fact, people in the media, most of whom think that all Africans are uncivilized tribal warriors as a way of life, have been asking exactly this question, as illustrated by this news story:

"Absence of street fury in Zimbabwe puzzles analysts

JOHANNESBURG - Suspiciously delayed poll results, army trucks fanning out through villages, police ransacking opposition party offices, and reports of torched huts and broken-limbed civilians—such has been the ugly face of democracy for nearly a decade in Zimbabwe, and by now most political experts have given up asking whether millions of Zimbabweans will ever reach a violent breaking point.

Indeed, even as fresh reports of government brutality seep out of Zimbabwe in the wake of the still-unresolved March presidential election, there are virtually no reports of unrest on the streets.

A call for a mass protest two weeks ago by the opposition Movement for Democratic Change, which claims it won the vote, fizzled as usual. Hungry citizens queued obediently for bread in the capital, Harare, last week even as cops rounded up hundreds of opposition activists. ...

This deep well of stoicism — or, as some critics sneer, passivity — in Zimbabwe's victimized population has for years been a source of puzzlement to many Africa analysts, humanitarian workers and foreign journalists, who contrast Zimbabweans' seemingly inexhaustible acceptance of suffering with deadly explosions of electoral fury elsewhere in Africa, most recently in Kenya. ...

"This is the single greatest mystery of Zimbabwe," marveled a Western diplomat in Harare who spoke on condition of anonymity because of the sensitivity of the issue. "In most other countries there would've been riots and violence years ago. But not here. These people are just too nice."

I really have to laugh at this hilarious story. The comparison with Kenya is absurd -- Kenya is entering a generational Crisis era, while Zimbabwe is in a generational Awakening era. To compare the two in any way makes no sense at all. You would expect bloody violence during a Crisis era, but not during an Awakening era.

But still, why haven't there been the political street demonstrations characteristic of an Awakening era?

Well, we know that any government can stop most such protests through torture and violence. How big would America's 1967 summer of love have been, if police were rounding up demonstrating teens, torturing them and jailing them?

Mugabe came to power after the crisis war ended in 1979, and initially worked to reconcile opposing factions. However, when Ndebele dissidents began to surface, Mugabe sent his army on a "pacification campaign" directed at Ndebele opponents, resulting in tens of thousands of deaths in 1983 and 1984. Mugabe maintained control throughout the 1980s and 1990s through torture and jailing of political opponents.

The beginning of Zimbabwe's generational Awakening era was signaled in 1999 by the formation of the Movement for Democratic Change (MDC), the major opposition party to Mugabe's ZANU-PF.

According to the MDC web site: "The Movement for Democratic Change (MDC) is a Zimbabwean political party. It was founded in 1999 ... as a political party opposing the government that had failed to represent people and the deterioration of Zimbabwe's economy and official corruption had reached alarming levels proportions, which gave birth to general dissatisfaction and unrest among the working people of Zimbabwe. The MDC was formed from a broad coalition of civic society which includes business, church, women's groups, students, human rights and civic groups, individuals including the impoverished rural and urban population."

This is exactly the kind of organization that typifies a generational Awakening era in any country.

And so, media complaints of no Keyna-like "unrest in the streets," or wide-eyed claims that Zimbabwe's people are are "too nice" to riot are silly. The "generation gap" is being channeled through the MDC, and widespread rioting and demonstrations are being held back by government beatings and torture. Zimbabwe is precisely following the same generational script that every other country follows, but with specifics adapted to its own needs.

There is still "one more shoe" to drop, however. An Awakening era is a political clash between the generation of survivors of the previous Crisis war versus the young people born after the Crisis war. There will have to be an Awakening era "climax" - an event that signals the victory of one generation over the other.

Typically the younger generation "wins," as when President Nixon was forced to resign in 1974. When the older generation "wins," as with China's Tiananmen Square massacre in 1989, it signals years of repressed turmoil, culiminating decades later with a new Crisis civil war.

However, those who are expecting a Kenya-like near term civil war in the short term between Ndebele and Shona ethnic groups are going to be disappointed for a long time to come.

Generational split in Southern African Community

The generational split within Zimbabwe is reflected in a much larger generational split throughout the countries of southern Africa, in the members of the Southern African Development Community (SADC).

The older leaders have a shared experience -- the "anti-colonial liberation struggles" of the 1950s and 1960s that led to independence of nations that were formerly European colonies -- and many refuse to criticize Mugabe for just that reason.

This includes most prominently South Africa's current president, Thabo Mbeki. He's been officially selected as a Zimbabwe "mediator" by the SADC, but he's received international criticism for refusing to criticize any of Mugabe's actions, despite the devastation that Mugabe has dealt to his country. But as a major figure in the liberation struggles, he will always ardently support his comrade Mugabe.

Younger African presidents, such as Zambian President Levy Mwanawasa, Botswana's Ian Khama and Tanzania's Jakaya Kikwete, have argued within the SADC for intervening in Zimbabwe. They point out that Zimbabwe is an embarassment to all of Africa, and the economic devastation and resulting refugee crisis is harming the entire region.

It's also worth remembering for a moment that Mbeki has been something of a nutcase when it comes to HIV/Aids. For years he refused to allow distribution of AZT, a drug that inhibits HIV, and claimed that AZT causes AIDS. The implication was that the same white imperialist colonial powers that imposed apartheid were now using AIDS to control black African nations. (A similar view has also been expressed by Reverend Jeremiah A. Wright.) Mbeki's crazy policy has done almost as much damage to Zimbabwe as Mugabe has, as millions of children have been orphaned by AIDS.

Brief generational history of Zimbabwe

Southern Africa
Southern Africa

The southern portion of Africa in the first decades of the 1800s was a region in great turmoil, with many different populations competing for resources.

Among the indigenous populations, the Zulus were an obscure tribe in the Transvaal, the northern portion of what is now South Africa. The Zulus went from obscurity to world renown as a result of Shaka, born in 1787, who became the tribal chief in the early 1800s, and who took the Zulu from being a tribe to being an empire.

In a massive war known as the Mfecane ("the crushing"), Shaka revolutionized tribal warfare with new kinds of spears and warfare techniques, resulting in the deaths of millions of indigenous Africans, by the time the war climaxed in 1828. Shaka's Zulu Empire left behind vast uninhabited regions by obliterating the populations that used to live there.

Into those newly uninhabited regions came the European settlers -- Boers and Afrikaners, from Holland and neighboring countries, and the British. In the 1830s, tens of thousands of Boers began moving north into the Transvaal, in what became known as the Great Trek.

The Ndebele tribe had already tried to establish itself in the Transvaal. Those who had survived the Mfecane had fled to this region, where they clashed with the Boers. The Ndebele spears were no match for the Boers' guns, and the Ndebele were massacred again, and were forced to the north, in what is now Zimbabwe, where they in turn massacred the Shona tribe already living there.

After a generational Crisis war, there's always a period of recovery, followed by an Awakening era of mostly non-violent political clashes, followed eventually by an Unraveling era where many previous societal conventions and rules break down. The Unraveling era is often characterized by desperate political measures to avoid another war, like the previous Crisis war.

Cecil Rhodes and Rhodesia

The Mfecane was still in the memories of the old-timers in the 1880s when large lodes of gold and diamonds were being found in the Transvaal. During this period, major clashes were avoided, as the British, the Boers, the Zulus, the Shona, the Ndebele and other groups signed treaties to establish boundaries, form governments, and share the wealth.

In the 1880s, entrepreneur Cecil Rhodes established two major companies, De Beers Consolidated Mines and Gold Fields of South Africa. These companies dominated the export of diamonds and gold.

In 1890, Rhodes made an agreement with the Ndebele allowing him to expand north, creating the British colony of Rhodesia, with Harare as its capital. However two problems arose.

First, improvements in transport permitted thousands more Europeans to migrate to Rhodesia.

And second, the young Shona and Ndebele, with no personal memory of the horrors of the Mfecane, began demanding expulsion of the Europeans. These changes led to the genocidal Matabele Wars (1893-97). These wars were fought not only between Europeans and Africans, but also between Shona and Ndebele. Rhodes had no trouble defeating both tribes, and by 1897 he had complete control of the region, with two colonies: Northern Rhodesia, which later became Zambia, and (Southern) Rhodesia, which later became Zimbabwe.

Once again, the end of the Crisis war brought several decades of political wrangling. By the 1950s, the Unraveling era compromises were becoming unacceptable to both Europeans and indigenous tribes.


In 1957, a young Robert Mugabe was among the blacks (Ndebele and Shona) forming the Zimbabwe African People's Union (ZAPU). However, even though all blacks were opposed to the apartheid government, ethnic politics caused a split in ZAPU, and in 1963 Mugabe formed the Shona-based Zimbabwe African National Union (ZANU).

By this time, Rhodesia was in a generational Crisis era and, as I've described many times on this web site, xenophobia plays a big part in such eras. Thus, the all-black ZAPU and ZANU parties, the latter led by Robert Mugabe, came to be opposed by the white supremist Rhodesian Front party, led by Ian Smith. Smith became Prime Minister of Rhodesia in 1964, and arrested Mugabe, imprisoning him for ten years.

A guerrilla war against the Ian Smith government began, and continued in 1976, when the Ndebele ZANU and Shona ZAPU forces joined together to form a Patriotic Front (PF). The civil war climaxed in 1979, when Ian Smith was forced to end apartheid. In the aftermath, Mugabe and ZANU won a resounding electoral victory over the ZAPU party.

The following is a Reuters description of what happened in 1983:

"Operation Gukurahundi (The rain that washes away the chaff before the spring rain)

In 1983, the North Korean-trained 5th Brigade, under the command of Lt Col Perence Shire, once known as the "Black Jesus", but currently the commander of Zimbabwe's air force, was the vanguard unit in a campaign against alleged dissidents that has also become known as the Matabeleland Massacres. At least 20,000 people were killed in the operation. The target of Gukurahundi was members of the rival liberation movement, ZAPU, led by Joshua Nkomo and drawn mainly from Zimbabwe's Ndebele people in the southwest of the country. There were numerous accounts of children murdered, women raped and killed, and homesteads razed. Regarding the deaths of civilians, Mugabe reportedly said in April 1983: "We eradicate them. We don't differentiate when we fight because we can't tell who is a dissident and who is not." Unlike other army units, the 5th Brigade, comprised of Shona-speaking people, reported directly to Mugabe."

Nonetheless, an attempt was made at reconciliation, and in 1987 the two parties merged to form ZANU-PF. However, this didn't end Mugabe's oppression of Ndebele people, resulting in the formation of the new opposition party, the Movement for Democratic Change (MDC) in 1999, as previously described.

The future of Zimbabwe

As I've said, those who expect Zimbabwe to follow Kenya's path are going to be disappointed, because Kenya is entering a generational Crisis era, while Zimbabwe is in the midst of an Awakening era.

From the point of view of Generational Dynamics, the next thing to watch for is who will "win" the Awakening era climax.

Reading today's headlines from Zimbabwe, you would think that Mugabe is going to crush his political opposition and force younger leaders to conform to his policies. The model would be the Chinese Communist Party's (CCP's) massacre at Tiananmen Square in 1989.

But Mugabe is 84 years old. His violent oppression is much more personal than the CCP's government policies. The death of Mugabe, which can't be too far off, would completely change the political situation, and may make an MDC victory possible in the next presidential election.

Overshadowing all of this is international relations, especially China's policies in Africa. China is clearly siding with Africa's "old guard," including Mugabe. But China is also being very careful not to stir up unnecessary controversy prior to the Beijing summer Olympics.

In the end, what happens in Zimbabwe may depend less on what happens in Mugabe's election and more on how China behaves in the next year. (4-May-08) Permanent Link
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Bank of England says that the financial crisis is over

According to the Bank's new "Financial Stability Report," credit fears have been overstated, and banks have overstated their exposure to mortgage-linked investments.

According to the Bank of England's report:

"Rising US sub-prime mortgage defaults were the trigger for an inevitable and broad-based repricing of risk and deleveraging by banks and other financial market participants. This process is proving even more prolonged and difficult than anticipated. Banks have been unable to sell or secure funding on assets in which markets have closed. That has increased uncertainty about banks’ financial positions, contributing to continued stress in money markets and tighter credit availability. In these conditions, adverse news and rumours can lead to a sudden loss of market confidence, as was shown by the collapse of Bear Stearns in mid-March.

An adjustment in both the price and quantity of risk-taking was clearly needed after an extended credit boom and was bound to have costs. But estimates implied by prices in some credit markets are likely to overstate significantly the losses that will ultimately be felt by the financial system and the economy as a whole, as they appear to include unusually large discounts for illiquidity and uncertainty. In effect, risk premia in some markets have swung from being unusually low to temporarily too high relative to credit fundamentals. That may be contributing to the delay in the return of confidence and risk-taking.

The most likely path ahead is that confidence and risk appetite turn gradually as market participants recognise that some assets look cheap on a fundamentals basis."

There's a great deal of irony in these conclusions.

First off, if you look at the BBC story on the report, the headline is "Bank says credit fears overstated," and the story quotes a business analyst as saying, "Financial institutions are currently assuming that losses on sub-prime will be on a scale without any precedent. The Bank of England thinks their fears are exaggerated. It now believes that the market price of sub-prime investment products overstates likely future losses on sub-prime lending by about 100%."

However, the ironic part of the BBC story is that, as of this writing, there is a sidebar right next to the above analyst quote, providing links to related stories. Here's the text of that sidebar this morning:

  • 'Tough conditions' hit Barclays
  • Credit Suisse bank loses billions
  • RBS sets out £12bn rights issue
  • Citigroup sees second giant loss
  • Write-downs add to Merrill woes
  • Brown 'standing firm' on economy
  • G7 passes plan to ease credit woe
  • IMF slashes world growth forecast

Financial market liquidity. Liquidity collapsed with the credit crunch that began in August, 2007 <font size=-2>(Source: Bank of England)</font>
Financial market liquidity. Liquidity collapsed with the credit crunch that began in August, 2007 (Source: Bank of England)

Next, if you look into the details of the Bank of England's report, you find the adjoining graph. This graph of the "liquidity index" points to the heart of the problem: That banks are still unwilling to lend money, and that the trend is, if anything, accelerating.

So how does the BoE conclude, "The most likely path ahead is that confidence and risk appetite turn gradually as market participants recognise that some assets look cheap on a fundamentals basis"?

The answer is obvious: The BoE report ignores the trend and resorts to wishful thinking.

Actually, the report itself contains warnings of more serious scenarios, but you have to dig deep into the report to find them:

"But there is a risk of a more severe scenario.

Although the most likely outcome is that markets recover over time, there is a possibility that the current disruption to the financial system continues for a more prolonged period. Table 3.A shows the Bank’s assessment of changes in the probability and impact of financial stability tail risks. ...

There is some risk of events over the past six months repeating themselves. Asset prices and financial market activity might persist at low levels, prompting further risk reduction by banks and other market participants. Such actions could generate significant selling pressure, leading to further falls in asset prices, and potentially disrupting wider market functioning. Amplifying mechanisms in financial markets could reduce asset prices further.(1) These factors have increased concerns about the vulnerability of the financial system to high risk premia, compared to the assessment in the October 2007 Report, when uncertainty in risk pricing was seen as a greater threat."

What the BoE is concerned about is a "self-fulfilling prophecy." The fear is that banks and investors will be too fearful of the future, and remain as risk-averse as they've become since August, as a result of which the fears will come true.

The problem is there's no way to stop that from happening. As I've said many times, investors are shifting from a historic, secular risk-ignoring attitude to a historic, secular risk-averse attitude. Furthermore, that's a generational shift that will last for decades.

Like many analysts, the Bank of England is assuming that the credit bubble was "normal," and what's happening now is "abnormal," and that with a few nice words and a little encouragement, investors will return to the credit bubble.

But that's clearly impossible, as anyone can see from the liquidity graph above. You can see the huge liquidity bubble that lasted from 2002 through August 2007 right on the graph. Now the liquidity bubble has collapsed, and by the Law of Mean Reversion, the liquidity level is going to have to remain low for a long time, for roughly as many years as liquidity was way above average.

And so it's absolutely certain that the Bank of England's optimistic conclusions are simply wrong.

In particular, the stock market is still way overpriced by a factor of close to 250%, same as in 1929.

I've estimated that the probability of a major financial crisis (generational stock market panic and crash) in any given week from now on is about 3%. The probability of a crisis some time in the next 52 weeks is 75%, according to this estimate. (1-May-08) Permanent Link
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