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


Web Log - April, 2009


Peace deal with Taliban collapses as Pakistan comes a step closer to civil war.

The Taliban promise revenge, as army helicopter gunships and artillery target militant hideout.

This is a familiar story.

In September, 2006, Pakistani president Pervez Musharraf signed a peace agreement with pro-Taliban militants in Pakistan's tribal areas. The militants promised to end their terrorist activities if the Pakistan army withdrew.

Northwest Pakistan <font face=Arial size=-2>(Source: BBC)</font>
Northwest Pakistan (Source: BBC)

The army withdrew, and the militants continued their terrorist activities, eventually expanding them out of the tribal areas into the Malakand region of the NorthWest Frontier Province.

It was just a couple of years ago that the Swat Valley was a bustling high-class tourist destination for skiers. That ended after months of Taliban terror that included beheadings, kidnappings, and the destruction of girls' schools. Up to one million people have been displaced from their homes.

In February, the new Pakistan government signed a new peace treaty with the Taliban militants in Swat. The government gave the Taliban complete control of Swat, in return for which the Taliban would end their terrorist activities.

However, the Taliban didn't stop their terrorist activities. Instead, they've been extending their control south, into Buner and Lower Dir districts.

Now the Pakistan army has reacted back in the other direction. They've suspended talks with the Taliban, and they've launched an offensive in Lower Dir with helicopter gunships and artillery, targeting militant hideouts.

As the fighting escalates, Taliban militants have promised revenge.

One interesting description of the situation is Time Magazine, which characterizes the Taliban militants as follows:

"It isn't hard to recognize a Pakistani Taliban fighter. Most of the thickly bearded men are barely in their 20s — members of a new and fiercer generation of jihadists. Their long black hair flows down past the shoulders on which they rest their rusty Kalashnikovs. Some wrap their heads in a black turban; others favor an embroidered red skull cap, modeled on the type worn by Abdul Rashid Ghazi, the militant leader killed during the army's high-profile siege of Islamabad's Red Mosque in July 2007. They shield their bodies with camouflage bulletproof vests, which usually have a grenade or two hanging from them. And under their hiked-up baggy trousers, all sport a pair of dirty white sneakers, with which they swagger menacingly around their freshly captured territory."

This tells the whole generational story. While American kids might be on their computers playing Warcraft with shields and weapons in virtual worlds, Taliban kids are playing the same game, only in the real world, with real guns and real beheadings. Just good clean fun.

President Asif Ali Zardari called on citizens to put political differences aside and give their backing to the troops fighting Taliban militants in a northwestern region:

"Time has come for the entire nation to give pause to their political differences and rise to the occasion and give full support to our security forces in this critical hour. ...

This is the only way to demonstrate our will, to keep Pakistan as a moderate, modern and democratic state where the rights of all citizens are protected. The operation in Buner and Lower Dir is meant to re-establish the writ of the constitution."

This flip-flop between peace agreements and resumed warfare is typical of the lead-up to a full-scale genocidal crisis civil war. I've described how this happened in the two crisis wars going on in the world today -- in Sri Lanka and Darfur -- and how it's been happening in Gaza and Israel as that region approaches a major war.

Now we see it happening in Pakistan. And, as is typical, each new round of warfare is more genocidal than the last one.

It remains to be seen whether the current round of warfare will fizzle out temporarily, or whether it will spiral into a larger war.

Another critical question, as the swine flu outbreak expands into worldwide pandemic, is this: What happens to this war (and other regions where conflict is occurring) if everyone in a conflict region gets sick?

During the middle ages when the Black Death was at hand, armies would catapult their dead soldiers into the enemies' camps, so that the other side would get sick as well. Will something like that happen again?

For several years, analysts have been calling Pakistan the most dangerous place on earth. As the fighting between the Taliban and the army escalates, that danger is only increasing.

(Comments: For reader comments, questions and discussion, see the Afghanistan, Pakistan and India thread of the Generational Dynamics forum.

Also see the Swine Flu Pandemic thread of the Generational Dynamics forum.) (30-Apr-2009) Permanent Link
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In a fragile world, a swine flu pandemic would have geopolitical consequences

Also: The big economic impact may trigger new financial crises.

Right now officials are still unsure, but by mid-week they'll have a pretty good indication of how serious the new swine flu outbreak is -- how many people are likely to get sick, how many people are likely to die, and how much the outbreak will affect the economy.

Experts have been saying for years that the world is overdue for a major flu pandemic, such as occurred 3 times in the 20th century. It may or may not be avian (bird) flu, and it may or may not be the current swine flu outbreak, but it's going to happen.

When it does, here are the estimated costs of flu pandemic: Some $3-5 trillion in worldwide economic loss, about 20% of that in the US, and the deaths of 50-100 million people.

In ordinary times, the world might be able to absorb this kind of loss without catastrophic consequences. But things are different today. The world is very fragile. I've described today's world as being in the Age of Great Compromises, because the leaders of every country are committed to maintaining the status quo, for fear that any change will trigger a war or financial catastrophe.

However, today's world is already on the edge of disaster. The Fed and central bankers around the world are running around like chickens with their heads cut off, patching up every financial institution before it can collapse.

An analysis by Ambrose Evans-Pritchard of the Telegraph shows how futile this effort is. Evans-Pritchard frames the growing financial crisis in simple macroeconomic terms: There simply is not enough money in the world anymore.

"The world is running out of capital. We cannot take it for granted that the global bond markets will prove deep enough to fund the $6 trillion or so needed for the Obama fiscal package, US-European bank bail-outs, and ballooning deficits almost everywhere. ...

It looked easy for Western governments during the credit bubble, when China, Russia, emerging Asia, and petro-powers were accumulating $1.3 trillion a year in reserves, recycling this wealth back into US Treasuries and agency debt, or European bonds.

The tap has been turned off. These countries have become net sellers. Central bank holdings have fallen by $248bn to $6.7 trillion over the last six months. The oil crash has forced both Russia and Venezuela to slash reserves by a third. China let slip last week that it would use more of its $40bn monthly surplus to shore up growth at home and invest in harder assets – perhaps mining companies."

This is the stuff of a deflationary spiral. During the bubble there was too much money in the world, causing asset prices to inflate artificially. Today there's a shortage of $6 trillion in the world, just to help economies to survive.

Furthermore, this $6 trillion shortage isn't a static value. Money is vanishing as governments, financial firms and hedge funds reduce leverage and write down the values of the toxic assets in their portfolios. It's quite possible that an additional trillion dollars or so disappears every month. The central banks of the world can't possibly "print money" with quantitative easing that quickly. They simply can't keep up.

And now we face the possibility of a swine flu pandemic that could cost the economies of the world another $5 trillion dollars. This is something that destroys the status quo that the world's leaders want to preserve at all costs.

The Evans-Pritchard article points out that:

"Great bankruptcies change the world. Spain's defaults under Philip II ruined the Catholic banking dynasties of Italy and south Germany, shifting the locus of financial power to Amsterdam. Anglo-Dutch forces were able to halt the Counter-Reformation, free northern Europe from absolutism, and break into North America.

Who knows what revolution may come from this crisis if it ever reaches defaults. My hunch is that it would expose Europe's deep fatigue – brutally so – reducing the Old World to a backwater. Whether US hegemony remains intact is an open question. I would bet on US-China condominium for a quarter century, or just G2 for short."

The above references the great Spanish bankruptcy of 1557, the major bankruptcy that preceded Tulipomania (1637).

But there's an even better historical example -- the Black Plague of 1347-51. Here's a map showing the spread of the bubonic plague:

Spread of Bubonic Plague in Europe, 1347-51 <font size=-2>(Source:</font>
Spread of Bubonic Plague in Europe, 1347-51 (Source:

According to one history of the Black Plague, "In Milan, when the plague struck, all the occupants of any victim's house, whether sick or well, were walled up inside together and left to die. Such draconian measures seemed to have been partially successful; mortality rates were lower in Milan than in other cities."

These kinds of emergency measures might be taken again, if the outbreak turns into a highly pathogenic bird flu pandemic.

The Black Plague came at a time when things were already terrible in Europe. There had been a huge currency bubble in Italy for two decades, and Italian banks started collapsing in 1343.

In France, the Hundred Years War had been raging, and the English won a huge victory by capturing the port of Calais on August 4, 1347, destroying France's economy.

The biblical book of Revelations characterizes a crisis war with the "Four Horsemen of the Apocalypse": Pestilence, War, Famine, and Death. Europe suffered all of those things in the 1340s-50s, and the continent was devastated.

Today, the world is headed for a new banking and financial crisis, a new world war, and new famines. The swine flu virus might fizzle, but if it doesn't, then it will be the new pestilence.

(Comments: For reader comments, questions and discussion, see the Swine Flu Pandemic thread of the Generational Dynamics forum.

Also see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (27-Apr-2009) Permanent Link
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New 'swine flu' virus is mild for most, but raises pandemic concerns

Precautions are being taken around the world.

The new swine flu virus has had its greatest impact so far on Mexico, particularly in the megacity Mexico City, where almost 100 people have died, and thousands have been infected.

It's now spread to other countries, including New Zealand and within the US, to California, Texas, Kansas and New York. There are suspected cases in Spain and France. Asian countries, with memories of the SARS epidemic a few years ago, and with constant worries about a bird flu pandemic, are moving swiftly into flu crisis mode.

As an example of how quickly it can spread, the New York infestation apparently occurred because a group of children took a trip to Cancun. The same is true in New Zealand -- a group of college students just returned from Mexico.

The current news gives no reason to believe that this will have anything like the potency of the avian flu (bird flu) epidemic that's been feared for years.

The incipient swine flu pandemic is raising concern because it's a completely new strain of flu, and combines genes from other viruses. It's called "swine flu" because it originated in pigs. It's unusual for a flu virus to jump from one species to another, but that's what happened here. However, officials are reassuring people that it's still safe to have bacon with your eggs for breakfast, although it's not a good idea to handle raw pork without gloves.

Officials are reassured by the fact that the cases that have developed in the US have been relatively mild. This is not surprising, since new virus forms often mutate to become milder as they spread.

Still, the warning is that anything can happen. The particular danger is what might happen when the new virus (low pathenogenic H1N1) reaches Asia, where it will have a chance to recombine with highly pathogenic H5N1 avian flu (bird flu). The concern is that the highly pathogenic virus will become able to spread easily from person to person.

Hardest hit so far is Mexico City, which is a "megacity" with over 20 million people. Panic has been averted so far, but all large public events have been canceled, schools are closed, and people are walking around wearing surgical face masks. It's possible that similar precautions will be adopted in New York City and elsewhere.

Officials are trying to keep the virus from spreading around the world, but that's probably impossible. They're using the phrase "pandemic potential." By slowing its spread, it's hoped that the virus will continue to become milder, even if it can't be stopped from spreading.

For the latest information on Swine Flu, including precautions that you and your family should take, check the web site for the Centers for Disease Control at or the web site for the World Health Organization at .

Here's an Associated Press video that describes the current situation:

(Comments: For reader comments, questions and discussion, see the Swine Flu Pandemic thread of the Generational Dynamics forum.) (26-Apr-2009) Permanent Link
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Wall Street Journal and Birinyi Associates are lying about P/E ratios

Their figures don't make sense, and they differ from everyone else's.

I've complained many dozens of times on this web site for several years that journalists and analysts constantly lie about price/earnings ratios (also called "valuations"), in order to support the stock market bubble. But what's going on at the Wall Street Journal really takes the cake. These people have no shame.

Last month I wrote "Analysts and journalists freak out as Q4 2008 earnings turn negative." In that article, I provided several different sources for current price/earnings ratios, including the Decision Point Earnings Summary, the Comstock Funds page, and a spreadsheet file from Standard & Poors.

Let's take a look at the latest figures from the official Standard & Poors spreadsheet:

                 Estimated Price/Earnings ratios based on
    Period     Operating Earnings         "As reported" earnings
    -------    ------------------         ----------------------
    Q4 2010        11.21                           24.07
    Q3 2010        11.77                           24.58
    Q2 2010        12.36                           25.38
    Q1 2010        13.17                           27.57
    Q4 2009        14.11                           29.82
    Q3 2009        19.73                         -464.52
    Q2 2009        19.95                         1932.00
    Q1 2009        18.82                          127.64

As I wrote last month, "operating earnings" is essentially a meaningless figure, supposedly equal to earnings, but not counting so-called one-time expenses. Since writing down toxic assets is a "one-time expense," the tens of trillions of dollars in losses from toxic assets are being ignored in "operating earnings," although their fraudulent nominal value was of course included with "earnings" during the credit bubble.

The only valid values for P/E ratios are based on "as reported" earnings -- that is earnings that public corporations report every quarter, following very strict accounting rules.

The figures 127.64, 1932.00 and -462.52 look like errors, but they're not. They're based on the previous year's earnings ("12 month trailing earnings"). Earnings turned negative in Q4, so they're small but still positive for the entire past year. By Q3 of this year, it's estimated that earnings for the trailing year will be negative, so the P/E ratio turns negative.

This should be a really huge news story, especially for WSJ and CNBC and for other financial media. Instead, they're doing worse than ignoring it; they're making up numbers to hide from the public what's going on.

I would also add that the principal financial bloggers are ignoring this as well. I don't follow all of these blogs every day, but I've never seen any mention of this huge story on Nouriel Roubini's blog, Michael ("Mish") Shedlock's blog, the Calculated Risk blog, the MinyanVille blog, Yves Smith's Naked Capitalism blog, or the Financial Times alphaville blog.

One way for journalists and analysts to "cheat" is to use made-up "operating earnings," and that's what a lot of them have been doing. But you can see from the above table that the current P/E is 19.95 for Q2, based on current S&P 500 index of about 850.

As we'll show below, the Wall Street Journal is reporting a current P/E of 13.09. Well, where the hell did that number come from?

Before going into that, let's see what a couple of other financial firms are reporting.

First, let's take a look at the following chart. There's a price/earnings ratio chart at the bottom of this web site's home page, and it gets updated automatically every week. Here's last Friday's version of the chart:

S&P 500 Price/Earnings ratio and S&P 500-stock Index as of 17-Apr-2009. <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 17-Apr-2009. (Source: MarketGauge ® by DataView, LLC)

If you look at the far right side of this chart, where the red circle is, you can see a huge spike in the last weeks, sending the P/E ratio off the chart, up above 40.

Next, let's take a look at the chart from the Decision Point Earnings Summary:

Earnings, price/earnings ratios, yields and prices -- 1926 to the present <font size=-2>(Source: Decision Point)</font>
Earnings, price/earnings ratios, yields and prices -- 1926 to the present (Source: Decision Point)

Once again, if you look at the area of the red circle, you can see the huge spike, off the chart.

So it's not as if everyone is following WSJ's lead.

Now let's look at what WSJ has been doing. And I'd like to thank "Freddyv" in the Generational Dynamics forum. He has been following this issue and working on it for several months, and much of this analysis comes from him.

Let's look at the following two charts from the Wall Street Journal site:

Wall Street Journal P/E charts.  Top: 29-Jan-2009.  Bottom: 24-Apr-2009. <font size=-2>(Source: WSJ)</font>
Wall Street Journal P/E charts. Top: 29-Jan-2009. Bottom: 24-Apr-2009. (Source: WSJ)

The top chart, from January 29, 2009, shows an S&P 500 ratio of 15.72. Supposedly, that figure is: "P/E data on as-reported basis from Birinyi Associates." But that figure is already a lie. If you look at the above two charts from MarketGauge and Decision Point, you can see the P/E ratio was above 18 all year, and has been well above 15 for ten years.

There's no way that the January 29 figure is based on "as-reported" earnings, as the chart claims. In fact, even "operating earnings" don't justify that figure, so I have no idea what figures they made up to justify that figure.

But it gets worse in the latest chart, for April 24, 2009, shown on the bottom.

First of all, notice that the claim "P/E data on as-reported basis from Birinyi Associates" has been removed. "Freddyv" says that they removed that claim when he wrote to the WSJ demanding an explanation. The WSJ didn't respond to him, of course, but they did remove this obvious lie from their web site.

But even if they're using "operating earnings," where the hell did 13.09 come from? The official numbers from Standard & Poors are much higher than that, as we saw above.

Not only that, 13.09 is lower than the January 29 figure, 15.72, but the S&P 500 index is almost the same. How is that possible?

There is no way to justify these figures rationally. So where did they come from?

Well, WSJ gets the figures from Birinyi Associates, and we can get a clue from the Birinyi Associates web site. Here's what it says right at the top of the home page:

"Our approach is to understand the psychology and the history of the market.

Birinyi Associates is a stock market research and money management firm. Our approach is to understand the psychology and history of the market, and most importantly the actions of investors. Much of our effort involves Money Flows, or what has traditionally been called ticker tape analysis.

Our daily, weekly and monthly research provides detailed market analysis as well as individual stock picks to individual and institutional investors. From our Chart of the Day to our Reminiscences newsletter, we believe that all of our services will prove to be a profitable investment of your time.

Please take the Birinyi Tour to learn which service is right for you and Subscribe today!"

I'm sorry, Dear Reader, but I can't stop laughing every time I read this. The Wall Street Journal, CNBC, Bloomberg News, and financial journalism in general have sunk so low that they actually depend on garbage like this. I'll make the same remark that I made in "Vile 'teabagging' jokes signal the deterioration of CNN and NBC news:" I don't see how the financial journalists could become any worse (though I'm sure they'll find a way).

So, apparently, Birinyi Associates do not depend on actual figures to reach their conclusions. They're a touchy-feely group of analysts. They analyze the psychology of the investor, possibly confirm their estimates with a handy Ouija Board and the local soothsayer, and pass those numbers on to the Wall Street Journal for publication. Incredible!!! They're an embarassment to the financial community and to the financial journalism community, but they're the norm today.

And so, Dear Reader, that's how the Wall Street Journal arrived at the P/E ratio value of 13.09.

And that brings us back to the question that everyone wants an answer to: How long will the current stock market rally last?

As I wrote last month, the stock market fell 90% from 1929 to 1932, but during that three year period, there were numerous rallies, one as long as five months. So the current rally is not exceptional, even in the current worsening financial crisis. But how long will it last?

We can get a clue by comparing today's stock market fall to the one from 1929 to 1932. Here's a chart from that compares them:

1929-32 versus today - Four Bad Bears <font size=-2>(Source:</font>
1929-32 versus today - Four Bad Bears (Source:

In the above chart, compare the period 1929-32 (shown in grey) to the period since October 2007 (shown in blue). In particular, if you look at the current rally (the end of the blue line), it appears to be leveling off, which indicates that the rally is just about at an end. If you compare the current rally with previous rallies in 2008 and in 1930-32, you can see that if history repeats itself, then we can expect a sharp plunge in the next few weeks.

For more thoughts about the path of the stock market today, check out "Timing the Depression" on Matt Stiles' Futronomics blog. This article has some of the latest charts showing the worldwide economic collapse.

But whether the rally ends now or later, it must end because corporate earnings are crashing, and because price/earnings ratios are going through the roof. This is not a "maybe," and this is not something that will happen unless President Obama does "X". There is nothing that can be done.

This shameful episode of lying by the WSJ about P/E ratios is nothing new. I've been giving similar examples for years.

This is just one more example of why you'll never get a straight answer about anything from WSJ or CNBC or any of the other financial media, or even from the financial bloggers, even from the "doom and gloom" Nouriel Roubini.

Once again, I would like to warn web site readers against the easy seduction of believing that "the worst is over," that "there'll be nothing worse than long recession" and that "there won't be a panic."

There is absolutely no possibility that any of these things are true. There is no theoretical support for any of these views, and there are no historical examples of these scenarios. The stock market will fall below Dow 3000 with 100% certainty. Any belief otherwise is simply wishful thinking.

Nothing has changed. The Law of Mean Reversion has not been repealed by the Wall Street Journal or the Obama administration. Since the stock market has been far overpriced since 1995, as I described in "How to compute the 'real value' of the stock market," and since the Law of Mean Reversion still applies, there must still a generational panic and crash in store.

It could come next week, next month or thereafter, but it's coming with absolute certainty, and nothing that has happened or is being planned has any possibility of stopping it, no matter how many manufactured numbers the Wall Street Journal publishes.

(Comments: For reader comments, questions and discussion, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (26-Apr-2009) Permanent Link
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Tens of thousands of Tamil civilians flee fighting, in last days of Sri Lanka war

A "human avalanche" of refugees threatens to overwhelm internment camps.

Sri Lanka army destroys an earthen barrier, allowing tens of thousands of civilian refugees to escape <font face=Arial size=-2>(Source: BBC and The Hindu)</font>
Sri Lanka army destroys an earthen barrier, allowing tens of thousands of civilian refugees to escape (Source: BBC and The Hindu)

The Sri Lanka army announced last week that it was ready for its final assault, and that's going on right now. In a situation described by the International Red Cross as "catastrophic," some 50,000 Tamil civilians are trapped in the "safe zone," a small strip of land, along with the remainder of the Tamil Tiger rebel force.

Tens of thousands more are wading across a lagoon to flee the safe zone, now that the government forces have breached a large earthen wall that was holding them in. However, there is a shortage of food, water and sanitation, and there's a danger of communicable disease.

There are pro-Tamil demonstrations going on around the world. Thousands of pro-Tamil demonstrators are in London, demanding that Prime Minister Gordon Brown take steps to end the fighting. In fact, Brown did call Sri Lankan President Mahinda Rajapaksa, requesting a cease fire, but the latter refused.

This is not at all surprising. As we've said many times on this web site, the climax of a generational crisis war is an irresistable force. The Tamil Tigers have announced that they're rather die than surrender, and the government will not permit the deaths of civilians keep them from exterminating the last of the Tiger rebels. After 25 years of escalating war, no one is in the mood for any sort of compromise.

Each side in the war is accusing the other side of genocidal acts and civilian slaughter. Since there are no independent reporters in the the war region, neither side's claims can be verified. My guess is that accusations on both sides are true.

However, even if both sides are equally guilty, there's a good chance that the world will consider only one side to be guilty, once the war ends. As the saying goes, "History is written by the victors."

I heard a pro-Tamil spokesman being interviewed on the BBC today. He was arguing for a "political solution," and he said that "military action will not settle anything."

Wrong! It's true that non-crisis wars rarely settle anything, but generational crisis wars do settle things -- at least for three or four generations.

That's what's happening now, right before the eyes of the world.

(Comments: For reader comments, questions and discussion, see the Sri Lanka crisis civil war thread of the Generational Dynamics forum.) (22-Apr-2009) Permanent Link
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Is Pakistan's government close to total collapse?

More analysts are saying so, and predicting dire consequences.

A web site reader has called my attention to the PBS Frontline video, "Pakistan: Children of the Taliban."

This is probably the best piece of reporting on Pakistan that I've ever seen. Instead of interviewing politicians, the reporter, Sharmeen Obaid-Chinoy, goes deep into the NorthWest Frontier Province and the tribal areas to show huge expanses of devastation. She talks to real people living in these areas, including Taliban children, and children who are victimized by the Taliban.

Frequently on this web site, I talk about children growing up during a generational Crisis era as suffering a kind of "generational child abuse," because of all the horrors of war around them. In generational theory, these grow up to be people in the "Artist archetype," because of their sensitivity. America's last Artist generation was the Silent Generation, so named by Time Magazine in the 1950s because they did their jobs and never complained.

(For more information on generational archetypes, see "Basics of Generational Dynamics.")

You can really see this in the PBS Frontline video. It's heartbreaking to see a nine year old girl describe vividly a beheaded man in the town square that no one can remove for fear of being killed by the Taliban.

And watch the boys describe how it's their duty to kill the enemy, including each other, their long-time friends. The boys always look downward when they talk, afraid and possibly ashamed of what they're saying.

(Update. A Pakistani web site reader sent me the following:

"While I personally agree with your recent article and also agree with your interpretation of the mannerisms of some of the children, my wife wanted to point out that, since this is a religious and conservative area, the boys may be averting their gaze / looking downward because the interviewer is a woman.

There is a concept in Islam of "ankhon ka parda" (covering of the eyes). This means that, as a man, you do not look at a woman directly unless she is your mother or sister. It is not uncommon in that part of Pakistan."

Even so, it's heartbreaking to hear those words about killing each other come out of the mouths of otherwise nice little boys. (Added 25-Apr) )

Even if there were going to be no war, the personalities of these children would already be determined. What they've already seen and lived through -- and so far it's only a tiny fraction of the horrors they WILL see -- will make them similar to each other, but very different from their parents. This is the most dramatic kind of example of how people's attitudes and behaviors are affected much more by what generation they're in, rather than what they see on TV, or learn from their parents or teachers.

Obaid-Chinoy interviews a madrassa cleric who trains boys to become suicide bombers. She asks him, "Who do you think will win this war?" He says:

"It's in our blood. No matter how many Muslims die, we'll never run out of sacrificial lambs. Non-Muslims only think about this world. But Muslims consider this an opportunity to achieve martyrdom. Someone who sees death as a blessing -- who can defeat him?"

I strongly urge every reader of this web site to watch this PBS Frontline report for the full 38 minutes. It will really give you a feeling for the sense of desperation that the Pakistani people are feeling today, and how serious the situation is.

Official map of Pakistan, with the addition of the FATA (Federally Administered Tribal Areas), highlighting Swat Valley <font face=Arial size=-2>(Source:</font>
Official map of Pakistan, with the addition of the FATA (Federally Administered Tribal Areas), highlighting Swat Valley (Source:

In February, the desperate Pakistan government capitulated to the Taliban in Swat Valley, agreeing to implement Sharia law in exchange for a hoped-for end to terrorist attacks. Obaid-Chinoy's report comes Peshawar, near the Swat Valley, and from the tribal areas.

However, not surprisingly, this desperate capitulation by the Pakistan government has not brought any peace. To the contrary, it's only whet the appetite of the Taliban, who are now using their complete control of Swat Valley as a launching pad. The Taliban have now refused to lay down their arms. Instead, the violent attacks have continued, and they've been quickly consolidating their gains, taking control of additional regions south of Swat, and moving closer to Islamabad every day.

A recent NY Times story explains the technique that the Taliban are using. It's a technique that's as old as time. The Taliban use violence to drive away the landlords, then distribute their property to poor people. By the time the property runs out, the Taliban are in full control, and maintain it through terror and intimidation.

The Taliban, who are Sunni Muslims working with al-Qaeda, are linking up with Sunni Muslim Punjabis, and are infiltrating into Punjab province and as far south as Karachi. The increasing rate of terrorist attacks in Lahore and around Islamabad are causing people to panic.

Analysts are increasingly talking about the possibility of a total collapse of Pakistan's government.

David Kilcullen, a counterinsurgency expert and adviser to Gen. David Petraeus, recently said that, "within one to six months we could see the collapse of the Pakistani state."

Kilcullen points out that, "Pakistan has 173 million people and 100 nuclear weapons, an army which is bigger than the American Army, and the headquarters of al-Qaida sitting in two-thirds of the country which the government does not control."

Analysts in India are even more concerned about the "Talibanization of Pakistan." According to Maroof Raza, a Delhi-based strategic affairs analyst, if Pakistan falls to the Taliban, there could be a flow of Pakistani refugees escaping the Taliban into India.

In fact, the Sunni Taliban terrorists have been particularly targeting Shia Muslims. Taliban control would force many Pakistani Shia Muslims into India, where they would be more comfortable with their historical allies, the Hindus.

From the point of view of Generational Dynamics, a refighting of the extremely bloody 1947 war that followed Partition is 100% certain. Whether Kilcullen and other experts are right that it could begin within one or two months cannot be predicted with certainty, since timing depends on chaotic events that could occur at any time, sooner or later. However, the final result is certain, and it will have dire consequences for the entire world.

(Comments: For reader comments, questions and discussion, see the Afghanistan, Pakistan and India thread of the Generational Dynamics forum.) (20-Apr-2009) Permanent Link
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Does Susan Boyle's sudden popularity signal new direction for popular music?

The sweet, melodious music of the 1930s and 1940s may finally be returning.

From the point of view of Generational Dynamics, popular music reflects generational moods, just like other cultural symbols due. Thus, the Boomers brought forward counter-culture "rock 'n' roll" music in the 1950s and 1960s, and Generation-X popularized the nihilistic music that I described in "Teen 'emo subculture' creating violent fault line in Mexico City."

A major shift in popular musical tastes is thus a signal of a change in generational mood, just like populist so-called Tea Parties in America, or a best selling nationalist book in China.

Whether such a change in popular musical tastes has yet taken place remains to be seen, but one possible signpost is the sudden explosive excitement over Susan Boyle's show-stopping performance of "I Dreamed a Dream" from the 1980s Broadway play Les Misérables, on the UK tv show "Britain's Got Talent," similar to the US show American Idol.

If you haven't seen Boyle's performance, then click on this link and watch it now. (YouTube is getting very legalistic, and won't permit the video to be embedded.)

Here are the lyrics (the verses in parentheses are not part of Susan Boyle's performance):

    I Dreamed a Dream
    (There was a time when men were kind
    When their voices were soft and their words inviting
    There was a time when love was blind
    And the world was a song and the song was exciting
    There was a time, then it all went wrong)
    I dreamed a dream in time gone by when hope was high and life worth living
    I dreamed that love would never die, I dreamed that God would be forgiving
    Then I was young and unafraid and dreams were made and used and wasted
    There was no ransom to be paid, no song unsung, no wine untasted
    But the tigers come at night with their voices soft as thunder
    As they tear your hope apart and they turn your dream to shame
    (He slept a summer by my side. He filled my days with endless wonder
    He took my childhood in his stride, but he was gone when autumn came)
    And still I dream he'll come to me, that we will live the years together
    But there are dreams that cannot be, and there are storms we cannot weather
    I had a dream my life would be so different from this hell I'm living
    So different now from what it seemed. Now life has killed the dream I dreamed.

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The song "I Dreamed a Dream" is not a new song -- it's been around for decades. What's different now is that it's suddenly a very popular song. And when something like this suddenly becomes very popular, it's of interest to Generational Dynamics.

Music during the Great Depression was sweet, melodious, and escapist. During the Great Band Era, 1935-45, leaders were able to form large bands because unemployed musicians were willing to work for little or no pay. Typically, each band had a singer. They would play at dance halls, where anxious, frightened people would go to dance and forget their troubles for a little while.

Now things are coming back full circle. People are becoming anxious and frightened again, and there's little patience for the violence nonsense in Gen-X music.

In fact, I see this change in musical tastes as part of the same change in mood as exhibited by the tax day "Tea Party" protests of the last week. These protests were anti-Washington, anti-spending and anti-tax. The protests were caused by the same kinds of anxieties and fears that are causing people to seek escape through sweet, melodious music.

In 2004, I wrote the article, "'It's going to be the 1950s all over again.'" In that article, I discussed a significant ongoing change in the behavior of college-educated women -- a desire to stay home with the kids, rather than be out in the work place.

With gender issues changing, it's not surprising that tastes in music are changing as well. As the new Great Depression progresses over the years, and as more and more musicians become unemployed, there's a good chance that we'll see a new Great Band Era, with bands playing sweet, melodious music in halls where anxious, frightened people will come to dance for a few hours, to forget their problems.

(Comments: For reader comments, questions and discussion, see the Music and Generations thread of the Generational Dynamics forum.) (18-Apr-2009) Permanent Link
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Vile "teabagging" jokes signal the deterioration of CNN and NBC news

"Tea party" protests are anti-Washington, anti-tax and anti-spending.

Here's something that I posted on an online forum early in 2004:

"I actually believe that things are much better today, because there's a much wider range of political views expressed in newscasts. My reading is that the major networks lean far left, CNN leans slightly left, and Fox leans to the right. The one that I believe is squarely hitting the center is MSNBC."

At that time, MSNBC's newsroom was run by Jerry Nachman, a distinguished journalist who made sure that the news reporting was balanced. His death early in 2004 caused a big slide in MSNBC's news standards.

By the time of the 2006 election, both CNN and MSNBC had completely abandoned journalist standards for Democratic party ideology. CNN essentially turned the network over to be a 24-hour per day advertisement for the Democrats. NBC news did the same, and in November ran a huge ideological dog-and-pony show announcing that the Iraq war was a 'civil war,' and that the US would be defeated.

Unfortunately, both CNN and NBC have only gotten worse in the last two years, and they both really seem to have become so disgusting in the last week that it's hard to see how they could become any worse (though I'm sure they'll find a way).

In the last couple of years, there have been only two major sources of decent journalism at NBC: Tim Russert and Tom Brokaw. But Russert has died, and Brokaw is already semi-retired.

The MSNBC web site describes David Shuster as "The Emmy award-winning journalist [who] has covered the nation's capitol for 16 years and is based in Washington, D.C."

Before I quote from Mr. Shuster's Emmy award-winning journalism, let me explain for those who don't know what "teabagging" is (as I didn't) that it's a component of oral sex, where the man places his testicles in the lady's mouth.

So now, if you watch this video of Shuster, you'll see him introduce his topic as follows:

"Thousands of them whipped out the festivities this weekend, and while the parties are officially toothless, the teabaggers are full-throated about their goals -- they want to give President Obama a strong tongue-lashing, and lick government spending."

Later in the "news" story, Shuster makes some puns about "DICK Armey," referring to the former House Majority Leader for the Republicans.

CNN's Anderson Cooper says, "It's hard to talk when you're teabagging," and David Gergen laughs. <font face=Arial size=-2>(Source: CNN/YouTube)</font>
CNN's Anderson Cooper says, "It's hard to talk when you're teabagging," and David Gergen laughs. (Source: CNN/YouTube)

CNN's Anderson Cooper took up the joke, as you can see in this video when he said, "It's hard to talk when you're teabagging," to howls of laughter from the other CNN correspondents, including David Gergen.

As if that weren't offensive enough, here's what far-left actress Janeane Garofalo said on MSNBC, completely unchallenged:

"Let's be very honest about what this is about. This is not about bashing Democrats. It's not about taxes. They have no idea what the Boston Tea party was about. They don't know their history at all. It's about hating a black man in the White House. This is racism straight up and is nothing but a bunch of teabagging rednecks. There is no way around that."

She went on to describe a "right-winger, Republican or conservative or your average white power activist" with: "Their synapses are misfiring. ... It is a neurological problem we are dealing with." She said that Fox News had captured the "Klan demographic," referring to the Ku Klux Klan. She added, "Who else is Fox talking to? Urban older white guys and their girlfriends who suffer from Stockholm Syndrome."

Garofalo is obviously a total nutjob, and she's entitled to her opinion. But the point is the the MSNBC anchors simply accepted her statement, and tacitly agreed with it.

From the point of view of Generational Dynamics, what we're seeing here is a growing populist movement.

A typical remark that I heard on CNN or MSNBC was, "The people at Fox News had a lot of fun creating these Tea Parties."

You'd have to be a total idiot to believe that a mass movement of this size was "created" by anyone.

The first major sign of this populist movement came in the reaction to CNBC market reporter Rick Santelli's February 19 rant, criticizing President Obama's bailout plan. What was significant about this was not the rant itself -- Santelli rants about something almost every day -- but that the rant achieved "viral" status and spread around the internet. As I wrote in "The mob turns ugly as AIG bonuses come under fire," Santelli's rant signalled a signficant change in public attitudes, and for the first time, the Obama administration was put on the defensive about its entire economic strategy.

Now we're seeing that this populist attitude is growing. And to say that CNN, MSNBC, and other mainstream media outlets don't have the vaguest clue what's going on is a vast understatement.

Some years ago, I heard the aphorism: "Liberals think that conservatives are evil, while conservatives think that liberals are stupid."

We can see from the above quotes that liberal nutjobs at CNN and MSNBC do indeed believe that conservatives are evil. But what about the second half -- are liberals stupid?

That the liberals on CNN and MSNBC are incredibly stupid is obvious from their ratings. In the 1990s, it used to be that CNN was far and away the ratings leader in cable news ratings. Fox News Channel (FNC) presented an alternate viewpoint, and began to surpass CNN in ratings. Today, FNC is far ahead of CNN,

The following chart shows the cable news ratings for Thursday, April 16. It compares the number of viewers for the five cable news networks (HLN is CNN's Headline News). All numbers are in the thousands of viewers:

    Network  Total day   Morning (6-9 am ET)      Prime Time (8-9 pm ET)
    -------  ---------   ----------------------   ----------------------
    FNC       1443       FOX & Friends     1098   O’Reilly Factor   3897
    CNN        725       American Morning   529   Campbell Brown     942
    MSNBC      441       Morning Joe        429   Keith Olbermann   1229
    CNBC       234       Squawk Box         217   CNBC Reports       228
    HLN        375       Morning Express    301   Nancy Grace       1172

Bill O'Reilly, who is hugely hated on the left, is now celebrating 100 consecutive months of being #1 in his time slot. As you can see from the above chart, he draws more viewers than all four of the other networks combined.

So how many additional viewers did CNN and MSNBC drive away to FNC in the last week? You have a growing, popular anti-Washington, anti-tax, anti-spending grass roots movement, and CNN and MSNBC are insulting and offending ordinary people by making odious oral sex jokes, calling them racists, and saying that the wives are victims of the Stockholm Syndrome. These vicious, vile attacks appear to be a sign of desperation on the left.

If the people at CNN and MSNBC want to drive viewers away from their networks, I cannot imagine a more effective way to do it.

CNN and MSNBC are being gratuitously offensive to millions of ordinary people, and this is costing them dearly in ratings. If that isn't stupidity, then I don't know what is.

(Comments: For reader comments, questions and discussion, see the Fox News Channel vs CNN and MSNBC thread of the Generational Dynamics forum.) (18-Apr-2009) Permanent Link
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Sri Lanka army ready for final assault on Tamil Tiger rebels

1000 Tigers are trapped in a "safe zone" with 100,000 Tamil civilians.

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I keep referring on this web site to the "explosive genocidal climax" that ends any generational crisis war, and apparently one is about to occur in the 25 year old Sri Lanka civil war. And it looks like it's going to be very ugly.

As I've described in the past, there are two ethnic groups in Sri Lanka: The minority Tamils and the majority Sinhalese. The Tamils have been demanding a separate independent state since 1976, and have been fighting a civil war since 1983. The army of Tamil fighters is called the Tamil Tigers, who are listed as terrorists by the US and Europeans.

(See "Sri Lanka government declares all out war against Tamil Tiger rebels" for a summary of the history of the two ethnic groups of Ceylon, now known as Sri Lanka.)

The civil war followed a completely typical pattern along a generational timeline. As long as survivors of the last crisis war (World War II) were still alive, fighting was sporadic, and punctuated with frequent peace agreements, sometimes lasting years.

The final peace agreement collapsed in 2005, and in 2008 the Sri Lanka government vowed to exterminate the Tamil Tigers by the end of the year.

They didn't achieve that goal, as fighting has continued into 2009. But the government forces have succeeded in defeating the Tigers on one battlefield after another, and have now trapped them within a "safe zone," along with 100,000 Tamil civilians, according to the UN.

Sri Lanka civil war <font face=Arial size=-2>(Source: BBC)</font>
Sri Lanka civil war (Source: BBC)

Because of international pressure, Sri Lanka agreed to a "humanitarian pause," during the two-day Tamil and Sinhala New Year, to allow food and medical supplies to be moved into the safe zone. The humanitarian pause ended on Wednesday, and the government says that it's ready for a final assault.

From the point of view of Generational Dynamics, it appears that both sides are poised for a climax. The government forces are completely out of patience, and will not let the deaths of civilians stand in the way of exterminating the Tigers.

The Tigers will make a last desperate stand, and after years of fighting, will not simply lay down their arms, even if fighting means the deaths of civilians.

No outsiders know for sure what's going on in the battlefield region. The government is not permitting the BBC or other outside media into the region. So all we have are the statements of the two belligerents.

The government is claiming that the Tigers are using Tamil civilians as human shields. Through the Tamil web site, the Tigers are claiming that government forces are causing "unprecedented carnage" of civilians.

Neither side's claims can be verified. But at some point, almost certainly in the next few weeks, the war will be "over." At that time, news organizations around the world will enter the region, interview everyone in sight, and report on what happened. All the atrocities and mass slaughter on both sides will become public knowledge. The world will pass judgment on both sides.

(Comments: For reader comments, questions and discussion, see the Sri Lanka crisis civil war thread of the Generational Dynamics forum.) (16-Apr-2009) Permanent Link
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Stories of massive generational fraud and corruption continue to pour out

Long-time readers of this web site know how much my life has been affected by the things I've been writing about. Writing online is no meaningless ideological game to me, as it is for the bloggers you read elsewhere.

This web site has turned into far and away the most important and significant achievement of my entire life, and I'm very proud of the fact that I've helped hundreds, perhaps thousands, of people save their families' lives by telling them how to protect their assets.

But nothing has affected me more than writing about the massive fraud and corruption that has permeated finance, journalism and politics.

As I've said many times over six years, the stench of corruption has sickened me. There are literally times when I came very close to vomiting right at my computer keyboard. And I can't begin to count the number of sleepless nights I've had since I started this web site in 2002, as I foresaw what was coming, and how everything I foresaw was coming true.

And the sickening stench hasn't ended. The same greedy, destructive Boomers and Gen-Xers who brought about this disaster are continuing to do so and continuing to lie about it.

Industrial collapse in Canada, Japan, Germany, Italy, France, USA and UK <font face=Arial size=-2>(Source:</font>
Industrial collapse in Canada, Japan, Germany, Italy, France, USA and UK (Source:

One of the slimiest performances I've seen was last week's presentation at Washington's Economic Club by Lawrence Summers, White House National Economic Council. Summers bragged about his life's accomplishments and then, smiling smugly, he said, "I think the sense of a ball falling off the table -- which is what the economy has felt like since the middle of last fall -- I think we can be reasonably confident that that's going to end within the next few months and you will no longer have that sense of freefall."

Well, you can just look at the above graph and see that he's lying. Industrial production figures in all the G7 (developed) countries have been like "a ball falling off the table." And you can look at all sorts of other data. There's absolutely nothing to justify Summers' claims.

Now, I don't really care if someone makes a lot of money, even someone like Summers, who made $5.2 million in 2008 from hedge funds, plus $2.7 million in speaking fees, and who also consulted for hedge funds when he was President of Harvard University. If the Harvard University trustees don't care, then why should I care?

But I'm offended when someone like that becomes the economic front man for the Administration, and then openly lies, especially after a year of hearing a lot of crap during the campaign that the Obama administration was going to be completely open and honest, without even the appearance of impropriety.

But I don't mean to pick on just Summers. He's just an average person in a world where the average person is a crook. The same generations of people who perpetrated the fraud, who created the worthless mortgage-backed securities and worthless CDS securities contracts, and sold them to the public as risk-free AAA securities are still in charge. Those people haven't disappeared; they're still pulling scams. They're just using new variations, to take advantage of this year's opportunities.

I've been writing about these scams for years, as regular readers of this web site know. One of the most disgusting was the subprime mortgage company that I wrote about last year in January. They had made huge sums of money by defrauding thousands of people by talking them into lying on their mortgage applications, and had defrauded the lenders through these falsehoods.

The reason that that story caught my attention was that the Boomer executive vice president, 59, was married to a Gen-X wife, 37. When the company went bankrupt, the wife decided to dump the husband and take the kids (why not?), in order to get as much money as possible. The husband killed his wife, then killed himself.

And even after all this, the remaining company officers were in bankruptcy court requesting that all remaining money be split among them as bonuses, rather than give it to some of the people who had been defrauded.

For some reason, this story epitomizes all that's been going on. Greedy, selfish, destructive Boomers and Gen-Xers, willing to destroy anyone else's life for their own gain, and committing further destruction when their attempts are foiled. The standard today in government, business and journalism is of dishonesty and unethics (is that a word?).

I recall a job interview from late 2007, just after the credit crisis began. (For why I was looking for a job, see "Boomers and Gen-Xers: Dumbing down IT / How Digimarc Corp. self-destructed.") I was talking to a company VP, and as was my obsessive habit, I warned him that there was a great deal of fraud going on in the world, and that he should make sure that his company's assets were safe. He said, "So you think everyone in the world is a crook?" I knew he thought I was nuts, and of course I didn't get the job.

So what's interesting to me now is that the stories behind all of these frauds that I've been writing about for years are starting to come out. If anything, what I wrote in the past underestimated the situation.

I've written about the "culture of complicity" that pervades today, and the overwhelming circumstantial evidence that proves that people were knowingly committing fraud.

In an airing of Bill Moyer's journal, William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s, described what's been going on:

"BILL MOYERS: Is it possible that these complex instruments were deliberately created so swindlers could exploit them?

WILLIAM K. BLACK: Oh, absolutely. This stuff, the exotic stuff that you're talking about was created out of things like liars' loans, that were known to be extraordinarily bad. And now it was getting triple-A ratings. Now a triple-A rating is supposed to mean there is zero credit risk. So you take something that not only has significant risk, it has crushing risk. That's why it's toxic. And you create this fiction that it has zero risk. That itself, of course, is a fraudulent exercise. And again, there was nobody looking, during the Bush years. So finally, only a year ago, we started to have a Congressional investigation of some of these rating agencies, and it's scandalous what came out. What we know now is that the rating agencies never looked at a single loan file. When they finally did look, after the markets had completely collapsed, they found, and I'm quoting Fitch, the smallest of the rating agencies, "the results were disconcerting, in that there was the appearance of fraud in nearly every file we examined."

BILL MOYERS: So if your assumption is correct, your evidence is sound, the bank, the lending company, created a fraud. And the ratings agency that is supposed to test the value of these assets knowingly entered into the fraud. Both parties are committing fraud by intention.

WILLIAM K. BLACK: Right, and the investment banker that — we call it pooling — puts together these bad mortgages, these liars' loans, and creates the toxic waste of these derivatives. All of them do that. And then they sell it to the world and the world just thinks because it has a triple-A rating it must actually be safe. Well, instead, there are 60 and 80 percent losses on these things, because of course they, in reality, are toxic waste."

Black doesn't name any names, unfortunately, but makes a general argument like the one I'm making -- that the fraud was so massive, that everyone must have been involved.

In another part of the interview, he does name two government regulators who failed to do their jobs:

"WILLIAM K. BLACK: Geithner is charging, is covering up. Just like Paulson did before him. Geithner is publicly saying that it's going to take $2 trillion — a trillion is a thousand billion — $2 trillion taxpayer dollars to deal with this problem. But they're allowing all the banks to report that they're not only solvent, but fully capitalized. Both statements can't be true. It can't be that they need $2 trillion, because they have masses losses, and that they're fine.

These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed, not because...

BILL MOYERS: What do you mean?

WILLIAM K. BLACK: Well, Geithner has, was one of our nation's top regulators, during the entire subprime scandal, that I just described. He took absolutely no effective action. He gave no warning. He did nothing in response to the FBI warning that there was an epidemic of fraud. All this pig in the poke stuff happened under him. So, in his phrase about legacy assets. Well he's a failed legacy regulator."

Black indicts both Treasury Secretaries -- Hank Paulson and Timothy Geithner -- and I can only agree. In this "culture of complicity," neither of them could blow the whistle or tell the truth without exposing their own complicity in the repeated fraud.

Another article, written in December, does name names, and gives specifics for how the fraud was perpetrated.

The article was written by Michael Lewis. In the 1980s, at age 24, with no business experience whatsoever, he stumbled into a job paying him a six-figure salary to advise investment bankers about something he knew nothing about. After a few years, he got out while the getting was good, and wrote a book called Liar's Poker about his experiences:

"I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, “I hope that college students trying to figure out what to do with their lives will read it and decide that it’s silly to phony it up and abandon their passions to become financiers.” I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.

Somehow that message failed to come across. Six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual."

Lewis was shocked at this response at the time, and indeed it's still shocking today. These were Generation-X students at Ohio State University looking for ways to get into the business of defrauding people. What kind of college must Ohio State University be to graduate a class of crooks? It's pretty safe to say that ethics is not a strong point at Ohio State.

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But of course I don't mean to pick on Ohio State. Every college was like that. It's not the college, it's Generation-X, kids who were (and are) infuriated by what they see as the stupidity of the Boomers in whose shadow they grew up, kids who rejected every value that their parents and teachers tried to teach them, and who glorify stupidity and fraud.

(See "The nihilism and self-destructiveness of Generation X," and "Reader comments on the Nihilism of Generation-X." For more information on generational archetypes, see "Basics of Generational Dynamics.")

Lewis' article is fascinating, because it explains exactly how and why collateralized debt obligations (CDOs) and credit default swaps (CDSs) were introduced in a big way into the securitization business.

Each development had one and only one purpose: To make more money at investment banks, while screwing investors. "I was just appalled," says Steve Eisman, also an Xer. "People would pay up to have someone manage their C.D.O.’s—as if this moron was helping you. I thought, You prick, you don’t give a fuck about the investors in this thing."

Eisman was a hero to Lewis, because Eisman tried to warn everyone that the securities market was headed for disaster. But no one listened because everyone was making too much money, screwing investors.

One of Lewis' villains was Greg Lippman, a mortgage-bond trader at Deutsche Bank, and also an Xer:

“What Lippman did, to his credit, was he came around several times to me and said, ‘Short this market,’?” Eisman says. “In my entire life, I never saw a sell-side guy come in and say, ‘Short my market.’”

Well, here we have a problem, don't we? We have Lippman selling securities, telling Eisman to make money by betting that the securities will lose money. I'm not a lawyer, but isn't that securities fraud? It sure looks that way to me. How come nobody is arresting Lippman?

When I talk about the aggressive, destructive role that Gen-Xers played in the current disaster, I often get an indignant reply. "We were working for Boomers, and we did what they told us to do, because we had to, or we would have been fired."

I usually answer, "If your Boomer boss asked you to kill his wife, would you do that too?"

What's clear from Lewis' account was this was almost an entirely Gen-Xer run scheme. When I read these stories, I never read about Boomers playing anything but a passive role. Some Xers are heroes, some Xers are villains, but all the actors are Xers. The Boomers don't figure in any of these stories. It's all about Xers.

By no means does that excuse Boomers. Boomers were still the bosses, and Boomers let it all happen. In fact, with fraud so pervasive, there's no doubt that they all knew that it was going on, but didn't object because they too were making money, and didn't care who got screwed.

That's why on the web site I'm always talking about the "lethal combination of greedy, nihilistic Gen-Xers, together with greedy, stupid Boomers." What's happened these last few years could not have occurred without the active cooperation of both Xers and Boomers. Xers were needed because of their contempt for values, and their willingness to destroy anything or screw anyone, in order to benefit themselves. Boomers were necessary because they had no moral values whatsoever, and they let the Xers do it, in order to benefit themselves.

In the end, Eisman summarizes the situation as follows: "That Wall Street has gone down because of this is justice. They fucked people. They built a castle to rip people off. Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience."

Isn't that amazing? Not one person. That's not surprising, when you consider that I've never heard anyone on tv apologize for what he he'd done. It's always someone else's fault.

For me personally, I feel a small element of pride that everything I've been writing about for the last few years has turned out to be completely true, and people who called me names were completely wrong. But that small element of pride is still overwhelmed by the enormous feeling of revulsion at what's been going on. And I'm not going to get much sleep tonight either.

I still sometimes feel like vomiting sometimes. I felt like vomiting last week when when I heard Larry Summers give his slimy speech, taking pride in what he's accomplished, and saying that everything is going to be OK. Summers has been a full, active participant in the massive fraud of the last few years, and now he's just continuing the fraud as Secretary of the Treasury.

Do you remember when the credit crunch first broke, in August 2007? At that time they were discussing how many of these toxic assets (as we now call them) existed. The optimists on CNBC said that there were less than $100 billion of them around. The pessimists on CNBC said that there were as many as $200 billion.

Well, guess what? Banks and insurance companies have already confessed to having $1.29 trillion in toxic debt, and last week the International Monetary Fund (IMF) indicated that they would reach $4 trillion.

And even that won't be the end.

Mike Mayo, an analyst at Calyon Crédit Agricole, analyzed the holdings of 11 major banks and found that, on average, loans have only been marked down to 98 cents on the dollar. This indicates that debt-related assets have much farther to fall, and that the $4 trillion will be far exceeded. The volume of toxic assets keeps going up every week, and I expect it to reach tens of trillions before it's all over.

There's another angle to this. The government is supposedly "stress testing" various banks, to find out the size of their toxic debt exposure, and whether the banks can survive. Well, the Fed has ordered the banks to keep quiet about the results of the stress tests. You can be sure that if the banks were passing the stress tests, they'd want everyone to know. So you can be sure that they're failing. It's just more lies, deception and fraud by the Administration that repeatedly spewed crap promising to be open and transparent, without having even the appearance of impropriety.

On another subject, President Obama has announced that his Administration will end deficit spending. They're going to do this with the most massive spending program in the history of the universe -- trillions in bailouts and stimulus, curing global warming, and implementing universal health care. Apparently President Obama believes that the way out of debt is to go infinitely deeper into debt.

Well, here's the assessment of the nonpartisan Congressional Budget Office (CBO):

Projected government deficit <font face=Arial size=-2>(Source:</font>
Projected government deficit (Source:

As the graph shows, the CBO "concluded that President Obama's budget would rack up massive deficits even after the economy recovers."

And so, we have worldwide industrial production crashing around the world, and worldwide trade and transportation have come almost to a standstill.

There is no way that anything remotely like Summers' giddy forecast is going to come true, and Summers knows it.

This is turning out to be a big joke. I'd laugh, except I think I'm feeling sick again.

(Comments: For reader comments, questions and discussion, as well as more frequent updates on this subject, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (14-Apr-2009) Permanent Link
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New book, "Unhappy China," stokes Chinese nationalism and anti-Americanism.

Runaway bestseller in China worries Beijing and the west.

It was exactly one year ago today that I posted the article, "Chinese embarrassment and anger grows over Tibet and Olympics."

<i>Daily Mail</i> story referencing "Horrible Chinese thugs"
Daily Mail story referencing "Horrible Chinese thugs"

<i>Der Spiegel</i> story saying, "There's no way people like that should be allowed on our streets."
Der Spiegel story saying, "There's no way people like that should be allowed on our streets."

That was the time before the summer Olympics games in Beijing. Chinese athletes were carrying the Olympics torch around the world.

A London newspaper called them "horrible Chinese thugs," and a German magazine's headline read, "There's no way people like that should be allowed on our streets."

This took place after the bloody riots in Tibet where, from the point of view of the Chinese, the Western media automatically took the side of the Tibetans. The Chinese were furious at the West, and there was so much paranoia on both sides that some kind of major confrontation somewhere was a possibility.

However, an act of nature turned things around, when the horrible Sichuan earthquake in May began a period of international good will directed at China. The good will carried through the Olympics games, allowing them to be an international triumph for the Chinese.

But many Chinese have not forgotten the enormous humiliation that the West visited upon the Chinese a year ago, and now we're beginning to see some of the repercussions.

A new book, called "Unhappy China - The Great Time, Grand Vision and Our Challenges," was published a month ago in China. The book is highly nationalistic, and highly anti-American and anti-West. And the book is a best seller, selling out of its first printing, 100,000 copies, in 11 days.

Here is one published summary of the book:

"A new bestselling book, Unhappy China, is stirring debate in China and alarm in the West because of its aggressive nationalism. Millions of web pages have sprung up to address the book since its release last month. In the book, five Chinese scholars assert China’s impending superiority as the world’s leader, advocate a hard line against their “enemies,” and express dissatisfaction with the West’s treatment of China.

Unhappy China
Unhappy China

The authors, Wang Xiaodong, Liu Yang, Song Qiang, Huang Jisu, and Song Xiaojun, denounce Western influences and specifically deride the United States for being “irresponsible, lazy, and greedy, and engaged in robbery and cheating.” They blame the United States for causing the current global recession. The authors urge the Chinese people to “conduct business with a sword in hand.” They call for the emergence of a group of heroes to “lead our people to successfully control and use more resources, ridding [the world of] of bullies and bringing peace to good people.”

Writing in Southern Metropolis Daily, Jing Kaixuan observes, “When I first heard about the book Unhappy China, I thought it was probably about how laid-off workers were unhappy, or about how peasants who had lost their land were unhappy. Maybe it was about how college graduates searching for work were unhappy, about how stock market investors were unhappy, or about how victims of the poisonous milk powder scandal were unhappy.” Instead, the authors of Unhappy China divert attention away from domestic ills and blame China’s problems on foreign enemies."

Condemnation of the book by Chinese politicians and scholars has been swift.

The state-controlled Xinhua news service immediately published an article with the headline, "Book rallying for social change fails to inspire the masses." They apparently published this article because they were afraid that the book WAS inspiring the masses.

The Xinhau article provides additional information about the book itself:

"The book argues that "with Chinese national strength growing at an unprecedented rate, China should stop self-debasing and come to recognize the fact that it has the power to lead the world, and the necessity to break away from western influence."

The book says "the current financial crisis reflects an overall corruption of the American society.

The book advocates more stern foreign policies.

"We should incorporate retribution and punishment into our diplomatic strategies, especially when dealing with Sino-French relations," referring to the meeting between French President Nicolas Sarkozy and the Dalai Lama in December last year.

The authors believe ordinary citizens should not be deprived of national development benefits, and that China should have the ambition to reestablish the world order, assume a leadership role among nations and achieve industry upgrading amid the current global financial crisis."

However, the Xinhua article quotes a saleswoman at a book store as saying, "It does not sell well. Few people linger at this section." I guess in China even booksellers have to tell the authorities only what they want to hear.

From the point of view of Generational Dynamics, what's important is not the attitudes of the politicians, but the attitudes of the large masses of people, entire generations of people.

The fact is that this book is extremely popular, and is particularly directed at young people. This means that the book's "message" might well be extremely important in determining the direction in which China is going.

That's why I found it interesting to read a published interview of Shanghai scholar Xiao Gongqin, discussing the nature of Chinese nationalism.

Xiao says that China's nationalism has been "marked by a reactive quality, ... goaded by a sense of tragedy and shame over the Chinese experience in the last century." Presumably this refers to China's bloody civil war (Mao's Communist Revolution), followed by Mao's slaughter and execution of tens of millions of people in the Great Leap Forward and the Cultural Revolution.

But now that's changing, according to Xiao. And of course that makes sense from a generational point of view, since young people today have no personal memories of the horrors of Mao's genocidal atrocities.

Before continuing with Xiao, it's worth mentioning that there's a resurgence of interest in Mao going on, at least to judge from the Chinese community in Toronto. This has really been taking hold in the last few months, as the financial crisis has grown.

Just as anxious people in the United States are looking back at President Franklin Roosevelt as a cure for our problems, anxious Chinese people are looking back at Mao as a cure for their problems.

The claim among these people is that capitalism is now proven to be a failure and that Mao was right all along in embracing Communism. However, this is greater than a condemnation of the West. Much of the pro-Mao criticism is directed at the Chinese Communist Party (CCP) government, for pursuing "reforms" that move toward capitalism away from Communism. These criticisms have been further spurred by numerous stories of corruption and embezzlement in the Beijing government.

Now returning to the interview, Xiao's discussion of "a sense of tragedy and shame" over Mao's massive bloody atrocities in the last century is being eclipsed by younger generations who increasingly look to Mao to save them from the current financial crisis.

According to Xiao, there is a new nationalism, and it has the potential to be extremely dangerous:

"Nevertheless, the form of nationalism represented in this book can no longer be defined in these original terms. Overall speaking, the attitude of Western countries toward China is warmer now than it has been in the past, particularly in the midst of the economic crisis, as the West has looked to China . . . hoping for friendly cooperation, and peaceful development has already become a general consensus among nations. Under this situation, the nationalism as represented by Unhappy China, which persists in striking this menacing tone, cannot be characterized as reactive. I believe that for some time to come this nationalist wave as epitomized by Unhappy China will continue to exist, and foreigners will have to learn to come to terms with this non-reactive form of Chinese nationalism.

What is the character of this new nationalism? Its crucial point is the positing by necessity of an “external enemy,” and this is seen by the authors as a basic condition of China’s existence and development. One of the authors, Wang Xiaodong holds precisely this. He believes that, “any species, if it is not challenged by its external environment, will certainly degenerate.” He finds a root for this new nationalism in social biology. He believes also that China has at present no “selective pressures,” so “everyone believes that things are fine, and that its OK to muddle along, and this makes degeneration unavoidable.” Particularly interesting is this line: “America too faces this problem, and so it actively goes in search of enemies.” I’m not sure, but it seems Brother Xiaodong is actually suggesting that in order for our people to grow strong, China must, lacking “selective pressures,” go and search for “selective pressures.”

I think the logic here can be summed up like this: If external pressures are the necessary condition of the development and existence of a people, if they then lack pressures, they must as a matter of course manufacture these pressures. If this is the argument, then it is both fearsome and dangerous. I really, really hope this is not what the authors mean, but what of the “angry youth” who are more radical than they are? They can certainly seize upon this logic . . . It is in this theoretical logic of nationalism that I see something frightful and dangerous. It does not lie too far, in fact, from bullying racism and jingoism."

From the point of view of Generational Dynamics, what's important about this situation is not that the book was written and published, but that it's suddenly so popular. This indicates a massive change in attitudes, a generational change by the people of China. And if Xiao is right, then it's "something frightful and dangerous," an attitude of "bullying racism and jingoism."

This could quickly translate into some kind of significant change in Beijing's policies.

I make a comparison to the February 19 on-air rant by CNBC market reporter Rick Santelli criticizing President Obama's bailout plan. What was significant about this was not the rant itself -- Santelli rants about something almost every day -- but that the rant achieved "viral" status and spread around the internet. As I wrote in "The mob turns ugly as AIG bonuses come under fire," Santelli's rant signalled a signficant change in public attitudes, and for the first time, the Obama administration was put on the defensive about its entire economic strategy.

Similarly, it's possible that this rapid acceptance by the public of "racism and jingoism" could force a similarly dramatic change in CCP policies. The CCP is one of the most paranoid governments on earth, especially since the massive anti-government Tiananmen Square student demonstrations in 1989, followed by the collapse of Communism in Russia in 1991. The CCP has no particular objectives except for one -- to do anything it can to stay in power. If that means making some policy changes to accommodate the attitudes of the masses reading "Unhappy China," then they will do that.

I'd now like to address two related questions that I hear frequently from web site readers.

Is the US becoming socialist?

This is a question I hear discussed on television, and from readers. Here's how one reader put it:

"I know you try to avoid taking political sides, but I have been quite worried about Barack Obama. I will admit that I am a conservative Republican, and thus predisposed to not trust Obama on anything. I also realize that the Republican party has let us down as of late. I do still support President Bush and respect the difficult job that he did during challenging times.

I believe that Obama is a Marxist, based on his numerous associations (Bill Ayers, Reverend Wright) and some of his "spread the wealth" comments during the campaign. This is my opinion, which admittedly may come from a general distrust of the Democrat party. My fear is that we will have full-scale bank nationalization and will end up with a truly Socialist government by the time Obama is out of office.

I would appreciate your views on if you think this is a possible scenario. I also realize that a depression may make it necessary to to have more socialistic policies for a time until we have some recovery. Those type of policies are very difficult to reverse once they are put in place, however, it would seem."

From the point of view of Generational Dynamics, any such massive change in economic policy is possible only if the masses of people believe it. No one that I know believes that the US government is capable of running a bank or an auto manufacturer, and there has been a big backlash recently when the Obama administration fired the CEO of General Motors. On the other hand, the Chinese people apparently DO believe that the CCP is capable of running a bank, so there's a big difference between the US and China in that regard.

However, there's another important issue. What exactly is "socialism"? Here's a dictionary definition: "Any of various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy."

It's fairly easy to show, using the mathematics of Complexity Theory, that this system of government is mathematically impossible. For a small population, say a feudal fiefdom with a hundred people, all aspects of the economy could be controlled by a feudal lord. But as the population grows, you need a collection of "regulators," people who decide things like prices, or who make decisions about what will or will not be produced. It's easy to show that as the population grows exponentially, the number of "regulators" has to grow at an even faster exponential growth rate. Thus, as the population grows, soon every person has to become a "regulator," and the system falls apart.

One might wonder what happened in Mao's Great Leap Forward in 1958-59, something that caused the deaths of tens of millions of Chinese. Here's a description:

This was the craziest damn thing. Mao tried to implement it because it was the only way to control the economy with a large population. The whole thing was a disaster when tens of millions of people died of starvation.

That's why, in the decades since then, China has instituted "reforms" that moved the country in the direction of capitalism. That's why Communism collapsed in the Soviet Union. That's why North Korea and Cuba, the two remaining Communist countries, have economies that are still stuck in the 1950s.

Thus, socialism and communism are mathematically impossible as a population grows. It's not possible for any government to control all aspects of the economy. However, a dictatorship can control selected portions of the economy. This is what China is doing, for example. But in this sense, "socialism" and "communism" should not be thought of as economic systems; they're actually political names for dictatorial forms of government. Thus, from the point of view of Generational Dynamics, "socialism," "communism" and "fascism" are different names for pretty much the same thing.

So, Dear Reader, for those of you who are worried that President Obama is going to lead the nation into socialism, let me reassure you on two counts: Socialism is politically unacceptable in America, and socialism is mathematically impossible anyway.

China: Civil war or war with US?

I've frequently mentioned in the past that China is headed for a civil war, and at other times I've mentioned that China is headed for a major war with the US. Several web site readers have asked me about this, since they seem to be conflicting.

Actually, they're not conflicting at all. The easiest way to see that is to look at World War II. China was in a massive civil war from 1934 to 1949, and right in the middle, China was in a war with Japan. Unfortunately, there's no law of Nature or Physics that says you can't be in more than one war at once.

From the point of view of Generational Dynamics, a refighting of the civil war is certain. As I wrote in 2005 in "China approaches Civil War," China has a long history of massive internal rebellions and civil wars, creating bloodbaths that have slaughtered tens of millions of people in a short period of time. These include the White Lotus rebellion that began in 1795, the Taiping rebellion that began in 1852, and the Communist Revolution that began with Mao Zedong's genocidal Long March in 1934.

From the point of view of Generational Dynamics, China is now about due for its next massive internal rebellion and civil war, and the current financial crisis is exactly what is needed to trigger a new rebellion.

On the other hand, a refighting of the 1940s war with Japan is also inevitable. As I wrote in 2007 in "Chinese commemorate the 1937 Massacre at Nanking (Nanjing)," feelings still run deep in China about the Nanking massacre, as well as the use of Chinese and Korean women as "comfort women" by the Japanese army.

The Chinese have always been grateful for the help that the Americans gave to defeat the Japanese on Chinese territory. However, by "the Chinese," I of course mean the survivors of World War II. Those people are almost all gone now. The younger generations feel no such gratitude; they feel only anger at what they feel is humiliation of China by the West and at the financial crisis, which they blame on the US.

The best seller status of "Unhappy China" marks a potential turning point. It's absolutely certain that the people in the CCP are extremely concerned, and they will do everything they can to defuse the issues. If they succeed at all, it will not be for long.

(Comments: For reader comments, questions and discussion, see the China thread of the Generational Dynamics forum.) (12-Apr-2009) Permanent Link
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Unrest in Moldova may have international repercussions

A new confrontation between Russia and the West may be coming.

Few people west of Vienna know anything at all about the country of Moldova, but Moldova may be the next country to prove Ambrose Bierce's aphorism: "War is God's way of teaching Americans geography."


Here's a brief news video of what's been going on:

Moldova has a large Romanian population, and was actually part of Romania between WW I and WW II.

However, in 1939, when Hitler's Germany and Stalin's Soviet Union signed an unholy mutual non-aggression agreement known as the Molotov–Ribbentrop Pact, Moldova was split off from Romania and made part of the Soviet Union.

Moldova remained part of the Soviet Union after WW II. As was Stalin's usual practice, never hesitating to create a situation leading to future bloodshed, Stalin moved thousands of Russians into Moldova, in order to "Russify" the Romanian population. And Stalin set up a large military installation in Transdniestria, a region within Moldova. (See the strip of land at the right side of Moldova on the map to the right.)

Moldova did not participate in the Romanian Revolution of 1989, but when the Soviet Union split up in 1991, Moldova became an independent country.

There's a comparison here to the situation in East and West Germany. When the Berlin Wall came down, Germany was reunited, but the extreme poverty in East Germany has hurt Germany's economy dramatically since then.

But when Moldova became "available" in 1991, the Romanians didn't want to reunite because of the same kind of poverty issue.

So Moldova became an independent country, still with a large Romanian population. And Transdniestria, with its large military installation and sizeable Russian and Ukrainian population, is apparently still under the direct control of Russia.

Today, Moldova is an economic basket case, and is one of the poorest countries in the world. It's even possible that the world's financial crisis will be triggered by Moldova, as much as by any other country.

But even more important, nationalist feelings are being aroused all around.

Moldova's government is still a "Communist" government, with close ties to Russia. Last Sunday's election left that government in control.

The re-election triggered large demonstrations and riots by people carrying Romanian and EU flags.

This is not surprising. Romania is part of the European Union (and also part of NATO). For several years, Romania has been lobbying to get Moldova into the EU, as a solution to the problem of Moldova's poverty. This is also favored by the Moldovans, who are dissatisfied with the failure of the Russian-backed government to improve the economy.

However, this has all led the Communist government in Moldova to accuse Romania of staging an "attempted coup." The Romanian ambassador has been expelled, and the border with Romania may be closed.

For the Russian government, this appears to be another instance of failed Russian policy in its former Soviet states. The Russians would not be pleased with talk of Moldova joining the EU, and there are warnings of repercussions unless things settle down.

This situation might fizzle into nothing, or it might escalate into a full-fledged international crisis. We'll be watching it.

One humorous sidelight is worth mentioning. There have been various "color revolutions" in other former Soviet republics -- the "Orange Revolution" in Ukraine, the "Rose Revolution" in Georgia, and the "Tulip or Pink Revolution" in Kyrgyzstan.

When the demonstrations started, the Moldovan government ran soap operas on television and shut down the phone system. But the young demonstrators reacted by using Twitter to spread the news. As a result, the demonstrators are calling this the "Twitter Revolution."

(Comments: For reader comments, questions and discussion, as well as more frequent updates on this subject, see the Moldova thread of the Generational Dynamics forum.) (9-Apr-2009) Permanent Link
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President Obama scores big diplomatic victory in a world waiting for ... what?

We might call this "The Age of Great Compromises."

President Barack Obama's visit to Europe was greeted by wildly enthusiastic crowds similar to the ones that I wrote about during last July's campaign visit to Europe in "Barack Obama in Berlin calls for greater European militarism." This time he said, "I've come to listen, not to lecture," to wild cheers.

Michelle Obama was treated like royalty, and much of the coverage of the couple centered on Michelle's style, and Michelle's mutual hug with the Queen of England.

Barack was pretty charming himself. At the G-20 economic conference, he's being credited with brokering a deal on tax havens (billionaires will supposedly no longer be able to hide money in countries like Switzerland and Lichtenstein); and at the NATO conference, he's being credited with brokering a deal on the selection of the new NATO Secretary-General (Turkey was objecting to the popular choice, the prime minister of Denmark, because of the Danish cartoon scandal of 2006).

However, it's not clear that anything of substance was achieved. Just as he did last July, Obama called for greater European militarism, especially in "Obama's war," the war in Afghanistan, and he even scolded the Europeans for "casual and insidious anti-Americanism," and for not "bearing their share of the burdens."

What's being declared as a new era of American-European cooperation is an agreement that Europe will send 5,000 troops to Afghanistan. What a diplomatic victory!!

Well, unfortunately, it turns out that they're only going to be there until the time of the presidential election in August; and they're just providing security for officials during the campaign, rather than doing any heavy fighting; and oh by the way, the Americans, who are the ones actually doing most of the heavy fighting, are sending 17,000 more troops.

Then, on Sunday, the North Koreans launched a missile that overflew Japan and was heading toward Alaska when it splashed into the Pacific Ocean. This has raised fears of a future nuclear strike on America's west coast. It also raised concerns about North Korean stepped up sales of nuclear materials to other countries, as it has recently allegedly done with Syria, Libya, Pakistan and Iran.

The missile launch had perfect timing, since it came just before a scheduled speech by Obama in Prague on nuclear proliferation. Speaking to 30,000 people, Obama called the launch a provocation that threatens the security of countries "near and far. What will the US or anyone else do about it? Well, nothing, but Obama did promise to lead the way in creating a world free of nuclear weapons.

The Age of Great Compromises

Recently I saw former Secretary of Defense Henry Kissinger being interviewed on tv, where he was asked, "What are the potentials around the world for confrontations in the next two to three years?" Here's his response (my transcription):

"The paradox of the situation is this: I don't know any period in history where every major power had simultaneously an interest in maintaining more or less the status quo. None of the big countries is in a position -- would want to challenge the status quo.

So you have countries like Iran, which is basically a relatively weak country, which however has a capacity to unsettle the Mideast, by supporting the radical movements there [Hamas and Hizbollah]. And secondly its development of nuclear weapons may set off a cycle of proliferation that in itself becomes a threat to the peace. So the challenge we have in the next period is to see whether the major countries, that more or less share a common interest in preventing this from happening, can overcome the domestic hesitations they have for a variety of reasons to do what is needed to solve the problems that exist."

I actually wrote about this subject in 2006 in "A beautiful mind? The world is paralyzed into a 'Nash equilibrium.'" I compared the world to a concept from mathematical game theory, describing a situation in a game where every player has to play the same move over and over again to avoid losing. Thus the world today is in a kind of Nash equilibrium, where every country is paralyzed into inaction, for fear of disturbing the equilibrium and starting a war.

I think that this is a truly fascinating aspect of the world's geopolitical situation, but I disagree with Kissinger that this is the first time in history that it's happened. As I described last year in "The gathering storm in the Caucasus," it's precisely what happened in the leadup to World War I. During "La Belle Époque," the period before 1914, the world was at peace, international trade was at a peak, and life was great - at least for the élite.

It was a time in history where "every major power had simultaneously an interest in maintaining more or less the status quo," to use Henry Kissinger's words.

There were two major factors destroying the status quo:

Both of these factors prevail today. Young, disaffected Islamist terrorists flew a plane into the World Trade Center, blew up London's subways, and are responsible for suicide bombings in countries around the world. Kids in Mexican drug cartels are killing and kidnapping thousands of people with reckless abandon. Young people in Taiwan increasingly want independence from China, but are held back by the threat of war from Beijing. Young Palestinians are ready to heed Iran's leadership to push Israel into the sea.

Today there are huge numbers of interlocking treaties. America alone has signed a large number of mutual defense treaties with other countries. These include agreements with Japan, South Korea, Israel, Taiwan, the ANZUS agreement with Australia and New Zealand, and the NATO agreement with all of Europe.

The worldwide fear of disturbing the status quo essentially means that nothing can get done, because anything non-trivial might disturb the status quo and trigger a war.

A waiting world

That's why this is a world waiting for something to happen. People anxiously grasp onto any straw of hope, wanting things to return to the Unraveling era of the 1990s, but not daring to disturb the equilibrium anywhere.

If Henry Kissinger understood generational theory, he would know that the current status quo cannot be maintained, and that sooner or later some crisis will irretrievably end the status quo.

That almost happened several times in the last year, with crises at Bear Stearns, Royal Bank of Scotland, Lehman Brothers, AIG, and others. In each case, officials rushed to restore the status quo. But the crises have been getting worse, and one of these times a crisis will be too large to patch up.

A more realistic view of the world than Henry Kissinger's is given by David Kaiser, a history professor at the Naval War College in Rhode Island. Kaiser is a student not only of history, but also of generational theory, having spent years as close friends of the founding fathers of generational theory, Neil Howe and his partner, the late William A. Strauss.

Kaiser is a strong supporter of the Democratic Party in general and President Obama in particular, but his expertise in both history and generational theory gives him a realistic view of the world and a great advantage over numerous over other professors of history and various experts who, as I've pointed out many times on this web site, really don't have the vaguest idea what they're talking about.

In his latest entry in his History Unfolding blog, Kaiser compares Obama to the presidents in America's two previous generational crisis eras -- Franklin Roosevelt in World War II and Abraham Lincoln in the Civil War (1860s):

"Roosevelt and his contemporaries, the Missionary generation, had spent their young adulthood during the Progressive era, a liberal era politically. Theodore Roosevelt and Woodrow Wilson had introduced the idea of government regulation of the economy into American political life, although their actual steps in that direction had been quite modest. The era of reaction against their efforts had lasted only eight years before the Crash of 1929. Roosevelt had a cadre of middle-aged reformers upon which to draw when he put the New Deal together.

Our own Awakening (about 1965-84) was very liberal socially, but politically it marked the shift from the Democratic majority created by FDR to the new Republican one created by Nixon and solidified by Reagan. There has been no serious effort to reform the economy on behalf of the less well off since the 1960s in the United States. And as a result, President Obama, whose instincts seem to be very good, is relying upon an economic team led by Tim Geithner and Larry Summers, each of whom is deeply implicated in the economic changes of the last fifteen years or so, and neither of whom has shown much interest in fundamental reform. I am deeply troubled that the maverick economists that have kept older traditions alive--the Paul Krugmans, Joseph Stiglitzes, and James K. Galbraiths--unanimously feel that the Administration's rescue plans have not found the right path.

No President can move faster than history is ready for, and it may be, sadly, that further disasters will be necessary to discredit what has become the conventional wisdom. Both FDR and Lincoln frequently disappointed their more radical supporters in their first years in office. But sadly, the diseases of the last thirty years have infected nearly our entire leadership class. The public is ready for a new one. The problem is to provide it."

Kaiser is expressing disappointment that this "world waiting for something" era is going to be politically costly for Obama. This is certainly true, as Obama's popular approval rating has been gradually falling since he took office, even though the stock market has been rallying, and even though he's scoring diplomatic victories overseas. (See "Japan's Prime Minister Taro Aso imitates Barack Obama, as Obama imitates Japan.")

Many people blame President Clinton and/or President Bush for the dot-com bubble crash, the real estate bubble crash and the credit bubble crash. But as I've written many times, the roots of these bubbles and crashes were laid decades ago, and they couldn't have been either caused or prevented by any politician.

And as I wrote last week in "Fiscal stimulus programs in 1930s and today," it's way too early in the current financial crisis for anything to work. History shows that a huge credit bubble requires five years of rapid deflation before any stimulus package can have an effect, and we're only 1½ years into the current crash. So nothing that the Obama administration does will have much effect before 2012. The reason that Obama hasn't "found the right path" is that no such path even exists.

But Kaiser, I think, is making a different point -- that Obama isn't even giving the APPEARANCE of doing enough, since he's relying too much on older people from the Boomer and Silent generations. (Last year, I wrote that Obama was in danger of being identified as this crisis era's "Hoover" figure, something for which I received some passionate repudiations by readers. But Kaiser now seems to be worrying about the same thing.)

Kaiser says that Roosevelt, who was in the Missionary generation (the same "Prophet" archetype as our Boomer generation) drew on "a cadre of middle-aged reformers upon which to draw when he put the New Deal together." In other words, Kaiser (himself a Boomer) says that Roosevelt drew on the younger Lost Generation, and wants Obama to depend much more on Generation-X, the modern incarnation of the Lost Generation.

That's a very interesting viewpoint from an avid Obama supporter, but I personally don't believe that it makes any difference in substance. As I've said over and over on this web site, the great events of our time will be determined by the attitudes and behaviors of the great masses of people, entire generations of people, not by the intentional behaviors or actions of a few politicians, and Kaiser himself says, "No President can move faster than history is ready for."

But it might make a political difference. It's possible that Obama's choice of advisors will affect how historians will view his Presidency. I have no opinion on that subject, and will leave it to historians like Kaiser to predict.

Waiting for the next crisis

In a sense, I might be a bit more optimistic than Kaiser about the potential for Obama's success as a President.

Before explaining why, I have to explain what I mean by "success," since it's not the kind of "success" that anyone would wish for.

President Lincoln and Roosevelt are considered among our greatest Presidents because they led the country during the times of greatest disaster. With bodies of dead, young American boys piled high on the fields of Gettysburg in 1864 and the beaches of Normandy in 1944, and with the continued existence of the United States of America in doubt during both eras, these two Presidents led America during these times of peril.

It's a little unfair to say that Obama's had it easy so far, but let's face it -- a stock market rally and a world determined to maintain the status quo are easier than the alternatives. Obama's legacy will depend on how he starts handling real crises when they arise.

Here are some examples:

Now here's the paradox.

Each of the issues in the above list might ripen into a crisis at any time. When it does, the politicians of the world will rush to do whatever is necessary to maintain the status quo, because that's the era we're in.

No one can be a Great President in an Age of Great Compromises. If politicians are successful in maintaining the status quo, as they've been through many recent crises, then Obama will suffer, because he'll be seen as unable to actually solve any problems, and his approval rating will keep falling. If this keeps on until 2012, then Obama may well have a failed Presidency.

(Update: A web site reader points out that the Republican/Democratic gap in approval ratings for Obama is the highest in modern history.)

If, on the other hand, one of these crises spirals out of control, into a generational "regeneracy event" (see "Basics of Generational Dynamics"), triggering a major war for Obama to lead the country through, and if the country survives, then Obama's presidency will be a "success."

(Comments: For reader comments, questions and discussion, as well as more frequent updates on this subject, see the The Near Future For America thread of the Generational Dynamics forum.) (5-Apr-2009) Permanent Link
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Fiscal stimulus programs in 1930s and today

Did Hitler really do everything right?

The US government has spent, lent or committed $12.8 trillion, for bailouts and stimulus spending, according to the latest figures.

It wasn't that long ago that a billion dollars seemed like a lot of money. But then we had President Bush's $60 billion stimulus package, followed by various bailouts and fiscal stimulus packages costing almost a trillion dollars each, and a new multi-trillion dollar budget.

Related Articles

Fiscal stimulus
The current stock market bubble correlates with bailouts and stimulus: This is another refutation of Richard Koo's stimulus theories.... (14-Oct-2009)
Fiscal stimulus programs in 1930s and today: Did Hitler really do everything right?... (1-Apr-2009)
The effects of massive fiscal stimulus - Part II: President-elect Barack Obama is turning apocalyptic in his speeches.... (12-Jan-2009)
The economic outlook for 2009 : How we got to where we are today, who's to blame, and where we're going in 2009. (5-Jan-2009)
The effects of massive fiscal stimulus.: A study comparing Japan's deflationary spiral with ours shows the way.... (24-Dec-2008)
One, Two, Three ... Infinity: Watching the world spin out of control.... (25-Nov-2008)

Are we going in the right direction?

In articles in December and January, "The effects of massive fiscal stimulus," and "The effects of massive fiscal stimulus - Part II," I described a presentation that was the first thing I'd heard in years that forced me to reassess my thinking about the country's continually exponentially escalating public debt. The presentation, by Richard C. Koo, Chief Economist at Nomura Research Institute, drew on the experience of the 1930s Great Depression and the 1990-2005 "lost decade" in Japan to reach the conclusion that these massive spending programs are exactly the way to go.

Still, Koo's presentation raised some serious issues and possible flaws in his theory. These issues are highly relevant to the choices being made by Congress and the Obama administration.

Last week, Koo gave a new presentation, addressing today's news, as well as some of the issues that I raised. I recommend to everyone to listen to and watch both presentations.

In this article, I'm starting with a lengthy summary of the latest presentation. Then I'll address what are apparently several flaws. And finally, I'll relate it all to the coming Clash of Civilizations world war.

Presentation summary

Here are the major points that Koo covered in his presentation:

I'll now turn to some major issues and possible flaws in Koo's theory. I've discussed these issues before. In this presentation, Koo addressed some of these issues, but did not give satisfactory answers, in my opinion.

The timing problem

This is the biggest flaw in Koo's presentation and in the Obama administration's plans.

The stimulus programs that have worked in the past have all required a five-year delay before they even began to be effective.

President Herbert Hoover's administration tried various spending programs in the early 1930s, but they were ineffective. It wasn't until 1935 or so that President Franklin Roosevelt's spending programs began to be effective. A similar statement can be said of Japan in the early 1990s.

According to Koo, a balance sheet recession begins when a huge asset bubble bursts. As with an ordinary balloon, when it starts leaking it leaks very quickly at first. After a time, it's almost completely deflated, and the leaking occurs more slowly.

In other words, a deflationary spiral is very rapid at first.

According to the Bank of International Settlements, there are over $1 quadrillion ($1,000 trillion) worth (notional value) of credit derivatives and other structured finance securities in the portfolios of financial institutions around the world. That represents a good part of the credit bubble. That bubble is leaking at perhaps a trillion dollars or so per month. The leaking is very rapid right now, and no stimulus program can keep up.

That's why the bill is already up to $12.8 trillion, and growing. No amount of bailouts and stimulus can keep up with the leaking, at least not at this time.

Koo's 3-5 year estimate for the crisis to end is simply wishful thinking. It took 15 years for Japan's crisis to end, and there's no reason why it should take the US any less time, especially since it took almost 15 years for the dot-com, real estate, credit and stock market bubbles to expand.

Tax cuts versus spending

Koo's attitude towards tax cuts doesn't make sense. His point is that if you use stimulus money for tax cuts, then the businesses simply use the money to pay down debt, so you only get 1 to 1 leverage for that money. But if you use the money for government spending projects, then the money creates jobs, and in a domino effect, that money creates 8 to 1 leverage.

But he overlooks the fact that lowering business taxes will allow businesses to save jobs, and will allow some businesses to survive, where they might go out of business without the tax cut. If a business lays people off or closes completely, then there's a reverse leverage effect, possibly 8 to 1. So carefully targeted tax cuts are just as important as carefully targeted spending programs.

If a tax cut can save 5 million jobs, that's better than spending stimulus money on 3 million make-work jobs.

What I proposed last month was that stimulus spending be split into two phases: First, a Preservation Phase, where the focus is on preserving existing jobs and businesses, and then, after five years, a Recovery Phase, where spending is targeted at new jobs.

The Administration seems to understand the "Preservation Phase" concept when it comes to the automobile industry (which is unionized), but they seem unwilling to do anything to help other businesses survive.

Japan's export economy

Another big flaw is Koo's theory is his response to the issue of export markets. During Japan's balance sheet recession, the rest of the world was in a credit bubble, and Japan could export trillions of dollars worth of goods to other countries, in exchange for currency. Koo claims that exports had no effect, since Japan's trade surplus was "remarkably stable" throughout the entire period, 1990-2005.

But that's not the point. Suppose those export markets hadn't existed? Then Japan's trade surplus would have gone sharply negative, and Japan's GDP would have fallen sharply, instead of staying flat.

The issue is what I call "leakage," and I can't figure out whether Koo doesn't understand this (unlikely) or is lying about this issue.

This intersects with the issue of protectionism, a subject that Koo never mentioned. In order to prevent leakage, a country can insist that all stimulus funds be spent internally -- which the US has done with its "Buy American" clause in the stimulus plan. Protectionism invites retaliation, and ALL countries' GDPs go down, as happened in the 1930s.

In order for the stimulus money to come back to the Treasury, it has to be used internally within the country. If the money is used for foreign goods and services, then it "leaks" out of the system. The only way to compensate is to get the money back through exports, and Japan had plenty of export opportunities available.

As if proof were needed, the latest economic figures from Japan are devastating: Japan's exports plunged a record 49.4% in February, and the economy shrank at an annual 10.9% last quarter.

And as I'm typing this, a new Tankan survey of manufacturing confidence has fallen to the lowest level since the survey began in 1974.

It's really pretty clear what happened to Japan. The stimulus programs didn't really help much at all. Instead, the economy shifted to where the money was -- exporting to China and the US. Now those export markets have virtually disappeared, and Japan is going to be suffering along with everyone else.

It's also pretty clear that President Roosevelt's spending programs really didn't help much in the 1930s. What ended the Great Depression for America was World War II.

And that brings us to the most important subject of all.

Hitler and today's dictatorships

Koo's most dramatic remarks came at the very end. FDR's spending programs didn't end the 1930s Depression. World War II did. Spending on the military, according to Koo, gives the highest "bang for the buck."

Koo said Hitler did everything right -- spending massively on the military. (He would be forgiven for not mentioning that probably the Japanese did everything right as well.) He expressed the hope that this worldwide financial crisis would not allow dictatorships to get ahead of democracies.

What dictatorships is he talking about? Well, maybe Russia, but you can be sure that he's thinking of China.

A few days ago, in "New Pentagon report shows China continues to prepare for war with US," I discussed the rapid military buildup that China is pursuing.

China is now embarking on a very aggressive fiscal stimulus plan. China doesn't say how much of the stimulus is going into the military. But China has already been increasing the military budget by 10-20% a year for years, as they prepare for war with the United States. I think it's quite certain that China will take advantage of this fiscal stimulus program to further increase military spending.

In the US, by contrast, President Obama is planning to cut weapons systems. As the world becomes increasingly dangerous, the US is becoming weaker.

I don't know whether Koo intended this when he made those final remarks about Hitler, but he illuminated a fast-approaching world in which the US and the world's democracies will be stumbling forward with social programs and bridges to nowhere, while China is turning into a high-powered military machine, preparing for war.

(Comments: For reader comments, questions and discussion, as well as more frequent updates on this subject, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (1-Apr-2009) Permanent Link
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