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


Web Log - April, 2010


30-Apr-10 News -- Politicians assign blame as euro crisis deepens

Greek public sectors unions plan big May Day demonstrations on Saturday.

German Chancellor Angela Merkel's complacency turns to panic

That was the headline for Thurday's EuroIntelligence briefing, which began as follows:

"Angela Merkel’s extraordinary complacency abruptly ended yesterday, when the chiefs of the IMF and the ECB persuaded her that further procrastination would add dramatically to the cost of the crisis, and that the future of the eurozone was now at stake. But it might have been too late as the crisis dramatically spread to Spain, and engulfed large part of the southern European banking sector."

Grim-faced Angela Merkel under the headline, "Fear about the euro crisis grows." The red line is a graph of the euro versus the dollar, on the front page of German newspaper Potsdamer Neueste Nachrichten <font face=Arial size=-2>(Source: Guardian)</font>
Grim-faced Angela Merkel under the headline, "Fear about the euro crisis grows." The red line is a graph of the euro versus the dollar, on the front page of German newspaper Potsdamer Neueste Nachrichten (Source: Guardian)

In fact, Angela Merkel is getting a great deal of blame for her apparent flip-flop on the issue. Merkel originally insisted that Greece would only receive money "as a last resort," and that was when Germany's share was going to be only 8.4 billion euros. But now that the total bailout has tripled, to 135 billion euros over 3 years, German's share is now 25 billion euros. Merkel's political opponents are claiming that she ensured that a "last resort" would come to pass, according to FT.

The German people have been opposed to aiding Greece from the beginning, and now that the amount of aid has tripled, opposition has increased. German newspapers are whipping up an anti-Greece fury, according to the Guardian. The headline on the tabloid Bild says, "The Greeks want even more of our billions! Will Greece become a bottomless pit for German taxpayers?"

Reuters quotes the conservative newspaper Frankfurter Allgemeine Zeitung as saying,

"Whoever thinks the Greece crisis is a currency or financial problem, is coming up far too short, and could therefore end up falling into an abyss. It's not just about a country which cheated its way into economic and monetary union (which everyone knew) and now can't live with it. The risk of chain reaction caused by the markets which could hit Portugal, Spain, Italy or not the biggest danger on the horizon. This is ultimately about the whole of the project "Europe". This is already obvious from talk about advantages and disadvantages of a country exiting or being thrown out of the euro area."

The choice of words -- "complacency turning to panic" -- is interesting because that's the Generational Dynamics paradigm for what happens during generational Crisis eras. The survivors of a crisis war (like WW II) are very cognizant of the dangers, and they create austere rules and institutions to prevent any recurrence. The younger generations born after the crisis war (like our Boomers and Generation-Xers) rebel against the austere rules and become complacent about the dangers. Then, when an emergency occurs during a Crisis era, these younger people turn from complacency to panic, and often over-react.

Another tense weekend

European officials are now meeting to come up with a commitment to aid Greece, by loaning Greece 130 billion euros at low interest rates over a three year period.

This will require agreement by the German Bundestag (parliament), and there will also be court challenges. But now that complacency has turned to panic, there is an urgent desire to get a agreement signed over the weekend.

As I understand the press reports, Merkel expects to get the necessary German law passed in the same way that President Obama got his health care bill passed. Merkel plans to use her governing coalition to force a favorable vote in the Bundestag, irrespective of the opposition of the German people.

There is also a possible compromise scenario. Greece has to make an 11 billion euro payment on its debt on May 19. If EU officials cannot get the full 130 billion euro bailout passed, then they might simply provide an 11 billion euro bailout, and then start the negotiating process all over again after May 19.

The Nuclear Option

But what if no agreement can be reached at all? Above we mentioned the possibility of an over-reaction, and this would be it.

Even if an agreement is reached on a bailout of Greece, there still remain the problems of Portugal and Spain. Both of these countries have had their debt ratings lowered, although not to the level of junk status that Greece's debt occupies.

When you take into account all of the PIIGS countries (Portugal, Italy, Ireland, Greece and Spain), a total of 600 billion euros in aid would be required, according to Bloomberg.

This brings us to the "nuclear option." Stated simply, the European Central Bank would "print" 600 billion euros, creating new money, and then use the money to purchase bonds at nominal value from all the PIIGS countries.

The article points out that there are plenty of political and legal obstacles to such a proposal. But Ambrose Evans-Pritchard, writing in the Telegraph, says that although this option would be prohibited by existing treaties in normal times, the ECB can buy unlimited quantities of assets in times of systemic crisis.

A proponent of the nuclear option is Jacques Cailloux, the chief Europe economist at the Royal Bank of Scotland.

The article quotes him as follows:

"We have gone past the point of no return. There is a complete loss of confidence. The bond markets are in disintegration and it is getting worse every day.

The ECB has been side-lined in the Greek crisis so far but do you allow a bond crash in your region if you are the lender-of-last resort? They may have to act as contagion spreads to larger countries such as Italy. We started to see the first glimpse of that today, [referring to Portugal and Spain].

This feels like the banking crisis in late 2008 post-Lehman, though it has not yet spread to other asset classes. The ECB will have to act it if does."

The nuclear option would be a world-changing event. It would inflate and weaken the euro currency, and would effectively be a devaluation. However, the dollar would be considerably strengthened, as investors fled to the dollar for safety.

Additional links

Greek's leftist public unions are planning a major May Day demonstration on Saturday. AP

Merkel isn't the only one being blamed for the euro crisis. Some people blame the speculators Spiegel, while other people blame the American ratings agencies Spiegel.

Ratings agencies are still making huge amounts of money in fees and commissions on the collateralized debt obligations (CDOs) that they originally rated AAA, before they turned into "toxic assets." Regular fee payments were built into the original deals, irrespective of the accuracy of the ratings. Financial Times

Neil Barofsky, head of the Administrations SIGTARP program, is criticizing Treasury Secretary Timothy F. Geithner for his role in the AIG bailout in 2008. Bloomberg

Al-Qaeda in Iraq is running short of suicide bombers. AFP

A major confrontation between Islamist extremists and the Pakistan army is looming in the tribal areas of North Waziristan. Asia Times

Belgium's lower house of parliament has voted overwhelmingly to ban all clothing that covers or partially covers the face, effectively banning the Islamic Burqa. Deutsche Welle

(Comments: For reader comments, questions and discussion, see the 30-Apr-10 News -- Politicians assign blame as euro crisis deepens thread of the Generational Dynamics forum. Comments may be posted anonymously.) (30-Apr-2010) Permanent Link
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29-Apr-10 News -- Desperate Europeans try to stave off euro currency collapse

Continuing 'Red Shirt' protests in Thailand lead to violence

Spain's debt is downgraded, as Greece's bailout requirements triple

The bad news just kept pouring out on Wednesday.

The S&P ratings agency downgraded Spain's debt on Wednesday -- not a lot, but enough to concern everyone that dominoes are falling, the day after the Portugal's debt was downgraded, and Greece's debt was lowered to junk status. AP

Financial officials, including International Monetary Fund (IMF) chief Dominique Strauss-Kahn and Jean-Claude Trichet, head of European Central Bank (ECB), met with German lawmakers in an attempt to break the impasse over the aid package to Greece. The London Times reports that the main result of the meeting was an understanding the planned 45 billion euro bailout package was not nearly enough, and it would have to nearly triple to 120 billion euros over three years.

Nouriel Roubini, who changes his mind as often as the weather, and who was predicting a U-shaped recovery just a few weeks ago, is now talking about the collapse of the euro currency. The LA Times quotes him as saying, "The reality is that what has happened in the last few months is the first test of the viability of the European market [and the euro currency].

He added that the possibility of the European monetary union coming apart is "significantly rising."

Germany is increasingly in the spotlight

Worldwide attention is now being focused on Germany, which is increasingly facing the reality that they're going to be blamed for this debacle.

Highly respected financial columnist Wolfgang Münchau, writing in FT Deutschland, wrote the following (translation):

"The German government's strategy for Greece is bad for the German interest, and Chancellor [Angela] Merkel is walking a dangerous path.

You can have a number of different opinions on how to respond to the crisis in Greece, but no matter how the German interest is defined, it is really very difficult to reconcile the German interest with the postion of the Chancellor.

Politically, the strategy was to sign declarations of solidarity in Brussels, and then to describe herself at home as "Madame Non," but this has backfired.

Angela Merkel would have taken more than one benefit from it, to delay the decision on helping Greece until after the May 9 NRW elections, if the tactic had not been so obvious. And economically it makes no sense, if you examine the story to its logical end."

Münchau goes on to examine the various options, and concludes that the only option that won't be disastrous for the German economy is to bail Greece out. And he suggests that Merkel's motive is to bring about the end of the euro currency.

Many commentators are suggesting that Merkel's delaying tactics are responsible for making the situation much worse, and much more expensive. Thus, an analysis by Der Spiegel indicates that the actual cost will be 135 billion euros, not 120 billion, and it quotes a German opposition politician as saying, "The indecisiveness and dithering of the European Union, instigated by the chancellor, have exacerbated the crisis and driven the consolidation requirement into the heavens."

The claim that Merkel's "dithering" has worsened the crisis is apparently based on the belief that the delay has forced Greece to borrow money at high interest rates, thus increasing their debts. My feeling is that even an early aid package would have reduced the 135 billion euros by only a small amount.

According to recent polls, 86% of the German people are opposed to helping Greece. That poll was taken when the bailout amount was 45 billion euros. Now that the bailout amount is 120 billion euros, or 135 billion euros, it's hard for me to see how the German people are suddenly going to be more willing to help Greece.

This is turning into a potentially ugly situation for Germany. There are still many ill feelings toward Germany in Europe, left over from the last century, and this situation will stoke them.

As I've been saying for some time now, the trend towards a Greek default has a huge amount of momentum, and I don't believe that there is any way of stopping or even slowing that trend, at this point. In fact, the momentum seems to have grown almost every day for the last month.

From the point of view of Generational Dynamics, we're in the midst of a turning point in history. We cannot take our eyes off of it, for the same reason that we can't take our eyes off of a traffic accident. We feel the same morbid fascination, but we also feel horror when we realize that we're not just bystanders to the traffic accident. We're all in the middle of it, and we're all going to suffer from it.

New violence as Bangkok, Thailand, red-shirt protests continue

The "red shirt" protests in Bangkok, Thailand, have now been going on for six weeks, much longer than anyone expected, and have been growing. Since the beginning of April, the protestors have occupied the Bangkok's high-class shopping district, forcing stores to close, and leading to a state of emergency. Army troops attempted to clear the protestors on April 10, but suffered a humiliating defeat, with 25 people killed, and hundreds injured.

On Wednesday there was new violence, with the security forces firing rubber bullets at the protestors, causing 16 injuries, according to the BBC. One soldier was killed, apparently by a shot fired by someone in the security forces.

The red shirts, who support former prime minister Thaksin Shinawatra, have promised to end their protest when the government dissolves parliament, and makes way for new elections. Prime Minister Abhisit Vejjajiva has resolutely refused to give in to these demands.

The following Al-Jazeera video gives a pretty good picture of life in downtown Bangkok these days:

One mystery associated with the protests is identity of the mysterious "men in black," well-armed men wearing black, faces covered with hoods, who have appeared in the crowds of red-shirt protestors and opened fire on troops. They're well trained, according to Reuters, and it's feared that they're former army rangers supporting Thaksin Shinawatra.

With the protests going on for so long, and with the loss of money from having the shopping district shut down, it's feared that the army will again resort to violence to disperse the protestors.

From the point of view of Generational Dynamics, Thailand is in a generational Awakening era, and so a full-scale civil war is impossible. However, as we've seen in Iraq and Iran, spurts of violence that can still occur. They may be short-lived, but people get killed all the same.

Additional links

People who regularly eat chocolate are more depressed than other people. BBC

Russia has posted online Stalin's secret papers on the 1943 Katyn massacre of Polish soldiers. Times Online

A Russian company is selling a long-range precision strike missile that can be hidden inside a shipping container, giving any merchant vessel the capability to wipe out an aircraft carrier, or any other target. Reuters

A drought in western Africa has threatened Niger with total crop failure. Nearly 8 million people are facing starvation. BBC

Migrants in Mexico from El Salvador, Guatemala, Honduras and Nicaragua are facing a "major human rights crisis," according to Amnesty International. Almost half of them are raped or abducted for ransom, often by public officials. BBC

A team of evangelical Christian explorers in Turkey claim that they've found the remains of Noah's ark. National Geographic

Boy Scouts can now earn merit awards for learning video game skill sets. MSNBC

A new map from the state of California shows more than 50 new surface earthquake faults that have been discovered. LA Times

(Comments: For reader comments, questions and discussion, see the 29-Apr-10 News -- Desperate Europeans try to stave off euro currency collapse thread of the Generational Dynamics forum. Comments may be posted anonymously.) (29-Apr-2010) Permanent Link
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28-Apr-10 News -- Greece melts down, as bond rating lowered to 'junk' status

There's been a 'quiet freeze' on new Jewish settlements in east Jerusalem.

S&P lowers Greece's bonds to junk status, predicts 70% asset loss

I heard a BBC reporter today describe this situation as "embarassing." Well, wearing non-matching socks is embarassing, but having your debt reduced to junk status requires slightly stronger words, don't you think? Apparently investors think so.

There's the smell of panic in the air today.

Markets fell 1.5-3% in Europe, North America and Asia, after the Standard & Poor's Ratings Services announced that it was lowering the rating on Greece's debt to "junk bond" status, and yields on 2-year bonds went to 15%.

But the junk bond rating is not the worst of it, according to FT Alphaville. In its announcement, S&P said that if a default occurs, bondholders will lose 50-70% of their investment.

However, in the spirit of "all talk, no action," officials from the European Union and the International Monetary Fund (IMF) talked about things that they might do to calm the situation.

The NY Times reports that the EU governments may hold a summit meeting on May 10, "in an effort to show unity." Well, what does that mean? They're already the European "Union," so what unity are they going to show?

The May 10 date was undoubtedly chosen because it's the day after the German elections. The hope is that the Germans will be more generous with aid money then. However, according to the Independent, polls indicate a roughly 50-50 chance that Angela Merkel's governing coalition will lose, since the German people so strongly oppose a Greek bailout. This would undermine the stability of the German government, and put the aid package into further doubt.

And Reuters reports that the IMF is in talks to increase its share of the planned aid to Greece to 25 billion euros from 15 billion euros.

The intent would be to increase the size of the total package from 45 billion euros to 55 billion euros. But I wouldn't be surprised if this IMF offer is used as a reason by some IMF countries to reduce their own contributions.

Reuters is providing a summary of the status of the aid package on a country by country basis. If you read through the article, you can see that in most cases, the aid is dependent on approval by the nation's parliament, and there is no committed date. One gets the feeling that the entire aid package is a house of cards.

The Greek financial crisis is gathering momentum. It's already gathered enough momentum that I don't believe that anything can stop it now, even if the will existed to stop it.

Greek contagion spreads to Portugal and throughout Europe

S&P also lowered Portugal's credit rating on Tuesday, though not to junk status. Bloomberg reports that the amount of debt as a proportion of GDP that Portugal has to refinance this year is one of the highest in the euro region, leaving the country "vulnerable to changes in investor sentiment," according to S&P.

I've heard several financial pundits claim that because Greece is such a small country, a default by Greece would not have much effect on anyone else. This is the height of wishful thinking.

FT Alphaville has provided the following chart of the exposure of European banks to Greek debt:

Exposure of European banks to Greek debt <font face=Arial size=-2>(Source:</font>
Exposure of European banks to Greek debt (Source:

Recall that we stated above that S&P expects holders of Greek bonds to lose 50-75% of their investments if Greece defaults. Thus, European banks will lose hundreds of billions of dollars in assets, in case of a Greek default. Contrast that with the "paltry" 45 billion euro aid package that may or may not get approved.

A lot of people are now thinking about the financial collapse of central Europe in 1931. Here's what I wrote in 2007 in "The bubble that broke the world:" On May 11, 1931, the Credit-Anstalt bank of Austria failed. This triggered mass panic and bank failures throughout Central Europe, and generated a worldwide banking crisis. On July 13, the German Danatbank failed. Foreign investors in Germany quickly withdrew their capital from Germany, heightening the crisis, leading to the complete collapse of the German economy. By the end of the year, there were over 6 million unemployed, and the resulting social tension gave rise to Communism and Naziism.

A lot of people now are worried that this will happen again.

From the point of view of Generational Dynamics, we're headed for a global financial crisis, with 100% certainty. With Greece in almost total meltdown, with Portugal to follow, this may be the trigger that causes the financial crisis.

Additional links

Israel's Prime Minister Benjamin Netanyahu has stated that there would be no halt to the building of Jewish settlements in Jerusalem, but there's apparently been a "quiet" freeze put into place for new contruction. CS Monitor

Germany has made the Greek crisis worse, through hesitation and patronizing advice. While the Greeks have produced "one false [financial] report after another," the Germans "delight in hindering a rapid and unambiguous European response to the Greek crisis." Der Spiegel

Although US stocks fell on the Greek news, stocks were set to fall anyway, because of deepening unemployment, according to Mitsubishi UFJ Securities Co. Bloomberg

Tired of investing in sinful stocks? Consider the Stoxx Europe Christian Index, which lets you invest in companies that are compliant with Christian moral and social doctrines. Christian Today

Cities in Italy and around the world are being crushed by debt, as the financial crisis continues to worsen. Washington Post

Like China and Japan, South Korea is stealthily building up its armed forces. The need for stealth is one reason why they haven't directly accused North Korea of sinking their warship on March 26. Diplomat

Powerpoint presentations have become an obsession among the military officials responsible for the war in Afghanistan. NY Times

Food prices in India have risen by as much as 20% over the past year, giving rise to nationwide protests and the rise of communist parties. BBC

Posters advertising a small Citroen C3 hatchback car contain the slogan, "Be like Madame Bruni, take a small French model". The ad mocks French president Nicolas Sarkozy, who is shorter than his supermodel wife Carla Bruni, and is causing a scandal. Telegraph

(Comments: For reader comments, questions and discussion, see the 28-Apr-10 News -- Greece melts down, as bond rating lowered to 'junk' status thread of the Generational Dynamics forum. Comments may be posted anonymously.) (28-Apr-2010) Permanent Link
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27-Apr-10 News -- Greece's bonds are hammered, with yields at 13%

Talk of Greek default, and dire consequences for euroland, is becoming more widespread.

Buffetted from both sides, Angela Merkel delivers conflicting messages

On the one hand, German chancellor Angela Merkel is facing elections on May 9, and one poll quoted by Financial Times indicates that some 86% of Germans are opposed to the proposed EU/IMF bailout of Greece.

That's why Merkel is taking a "hard line" on the plan, according to the Irish Times.

On the other hand, Greece will default if it can't make an 11 billion euro payment on May 19, and if Greece defaults, then the world is going to blame Germany. Merkel knows this, and that's why Merkel says that "Germany is ready to help," according to Bloomberg.

The two seemingly contradictory positions are rationalized by imposing all but impossible conditions on Greece as a requirement for aid. Thus, Merkel is demanding that Greece go beyond its partial austerity plan for the next year, and commit to even harsher deficit reductions in the two years that follow.

Ironically, a majority of Greeks also oppose the bailout deal. According to a poll quoted by Reuters, 61% of Greeks are opposed.

It appears that the German people and the Greek people agree on something: That Greece should pull out of the eurozone, and return to using its old national currency, the drachma. That may be the people's choice, but it's not the politicians choice. German, EU and Greek government officials have all been unanimous in saying that having Greece leave euroland is not an option.

I believe that a lot of people are hoping that Angela Merkel will soften her position after the May 9 election, and that the aid can be provided to Greece in time for the May 19 payment.

Greek bonds are hammered, with yields above 13%

For several weeks we've been describing the rising yields (interest rates) demanded by investors who agree to purchase Greek debt, and those yields have jumped to a substantial new high, with 2-year bond yields exceeding 13%, according to FT Alphaville.

The following graph of Greek 2-year bond yields since January shows what's been happening:

Yields on 2-year Greek bonds, January 2010 to present <font face=Arial size=-2>(Source:</font>
Yields on 2-year Greek bonds, January 2010 to present (Source:

Although no politician is saying this, and no mainstream journalist or analyst is reporting this, and no mainstream blogger is blogging this, this is a full-scale panic, as the prices of Greek's 2-year bonds are crashing, pushing yields up. (Recall that with bonds, yields go up when prices go down, and vice versa.)

What this means is that investors are increasingly convinced that 2-year bonds are going to default, which means that they're convinced that Greece is going to default within two years.

This has really been pretty obvious for several weeks, as we've been reporting on this web site. There's a solid chance that aid won't be provided to Greece in time for their May 19 payment. But even if aid IS provided, then Greece has to continue making payments, and the proposed EU/IMF aid package is only enough for a year. This means that the Germans are going to be asked to write another check to Greek next year -- and the year after that, which means that this whole process would have to be repeated over and over. Today, there's no credible chance that that will happen.

Journalists and politicians begin to talk about a Greek default

For months I've been writing on this web site about the certainty of a Greek default, and the farcical play acting going on in Brussels, as politicians pretend to be working on a way to save Greece, but all the time simply spewing the most fatuous possible nonsense in press releases and press conference statements.

This is just a little nothing web site, so if you're a regular reader, you may be wondering, as I have for years on this and other subjects, why you have to come to this particular web site to actually find out what's going on in the world? Why are journalists and bloggers so credulous that they simply reprint the press release statements of the politicians, who are little more than circus performers?

Well, as credulous as the mainstream reporters and financial experts are, even they are having a hard time going on with this game.

Thus, in the NY Times we read, "Only a few weeks ago, the idea that Greece might restructure its debt seemed like the nuclear option. Now restructuring — a polite alternative to outright 'default' — is not only thinkable, but even likely."

And we're reading even more dire commentary, that a Greek default would mean the end of the euro. FT Alphaville quotes a published note from an analyst at the Royal Bank of Scotland as saying exactly that.

He makes a very interesting technical argument to prove his point, and it has to do with whether or not euro area loans to Greece would be senior to existing Greek debt. What this means is that if the aid package is approved, and enough money is loaned to Greece to meet the May 19 payment, and then Greece defaults anyway, then who will get paid first -- the EU lenders, or the older debtors?

The above is just one example of the complexity of the situation. My reason for presenting it is to show that there is now an active discussion going on about the possibility (or probability) of a Greek "restructuring," or default.

"Some horrendous Keynesian/monetarist nightmare"

Strategists at the Royal Bank of Scotland seem especially contemplative these days, as FT Alphaville quotes a note from another of their analysts.

This note is so "right on" that I want to quote it at length. The author's name is Bob Janjuah:

"Maybe its the return of sunshine, maybe its because I have moved back into my lovely ‘new’ home after 6mths of renting & refurbishment, it may even be because I have accepted that my beloved Liverpool FC now needs some dramatic and radical ’surgery’ if it is ever to be a real force again. Whatever it is, the net effect is that I have spent an awful lot of time ‘reflecting’, just thinking about the world, watching the world ‘get on with it’, and listening to our policymakers and their buddies in the media, in the lobby groups and in the financial sector. My conclusion? Well, I am fast coming round to the idea that (A) I am an idiot (cue the applause!) and that (B) Kevin G may have been right all along [that politicians and investors would continue to act recklessly].

I had assumed, after doing what it took in late 08 and early 09 to avoid global depression and systemic financial system collapse, that policymakers & their buddies would see the light and realise that the only path to long term success for the problem economies (US, UK, most of Europe, Japan, etc) would be a period of Austerity, Balance Sheet repair, Deflation, Real Structural Economic reform and Serious Financial System/Accounting regulation/reform. This path is NOT the easy path near term, but it is the ONLY path for ensuring the long term health and success of the problem economies, as well as ultimately the ONLY path which will both successfully iron out the grotesque global imbalances and help ensure the long term success of the global economy.

SADLY, during my period of reflection, I have come round to the view that we have missed this golden opportunity. What instead I am seeing is a desperate attempt to re-write history (‘there was no bubble’, ‘rates too low for too long had nothing to do with it’, ‘it’s all just the fault of a bunch of greedy traders’, etc etc) AND at the same time it is clear global policymakers and their buddies, whilst jaw-boning us about ‘exit’ and ‘austerity/fiscal repair’, simply do NOT mean what they are saying – in other worlds, they are talking ‘responsibly’ but are acting IMHO in a reckless and irresponsible manner. And in my book actions ALWAYS speaker far more clearly and far louder than (cheap) talk.

The Greece bail-out, the goings on at the IMF involving the huge build-up of ‘new bail-out’ reserves, and all the talk in the UK about fiscal repair based on fantasyland ‘efficiency gains’ are the latest evidence that policymakers EVERYWHERE have no appetite to be brave, to be strong and to do the right thing. It seems that it is clearly too painful to do anything else. Instead, policymakers EVERYWHERE seem to have decided that the only way out of the hole is MORE DEBT, MORE DEBASEMENT, MORE BAILOUTS, ugly INFLATION and/or even uglier STAGFLATION, FAKE AUSTERITY, ZERO STRUCTURAL ECONOMIC REFORM, & MINIMAL REGULATORY REFORM.

We are trapped in some horrendous Keynesian/monetarist nightmare, where policymakers, aided/abetted/advised by their buddies in the media, in the lobbyist cabal and in financial system, have YET AGAIN decided to go down the route which merely delays the problem/pushes it down the road, but which virtually guarantees that when the NEXT bubble collapses (I assume it will be the Global Government Debt/Bond Bubble and/or the Global Fiat Money/Paper Money/FX Bubble), there is NO pleasant way back."

Janjuah is essentially predicting a global financial crisis and market crash. That this is coming is well known to readers of this web site, but it's interesting to see the reasoning that brought Janjuah to this conclusion.

He had actually thought that the mini-crisis that we've had so far, since 2007, would actually be enough to get politicians and bankers and journalists to change their behaviors and actually act responsibly.

But that's not how the world works. The world NEVER works that way. Janjuah blames this on "some horrendous Keynesian/monetarist nightmare," but this has nothing to do with schools of economics. This is a generational phenomenon.

Nothing that's happened in the last three years has caused the greedy, nihilistic Gen-Xers in finance, journalism and politics from being willing to screw anyone for their own gain. Nothing that's happened in the last three years has caused the greedy, incompetent Boomer managers to learn how to lead or manage. The same people who created the crisis in the first place are still in their jobs, still following the same types of behaviors.

A web site reader recently wrote to me about how he understands Generational Dynamics:

"This whole thing seems fatalistic as the only way to get out of the crisis is to create one so painful that the next generation is scarred to the point that they become very conservative and thereby start the cycle over by not exposing their children to hardship. If you prevented a crisis you would therefore not allow generational change and another crisis would come shortly as attitudes of the current generation lead inevitably to this?"

This is exactly right. From the point of view of Generational Dynamics, you need a major, existential crisis to change the nihilistic, incompetent behaviors of the politicians, analysts and journalists, and force them to adopt new behaviors just to survive.

It's really not so strange. After all, many times an alcoholic will keep on drinking until the day that he completely "reaches bottom," having lost his money, his wife, his family, his job and his home, and only then will he change his behavior. The same is true of the world today.

Additional links

For the nations of Europe, especially Greece, their geography controls their destiny. NY TImes

I've frequently criticized Paul Krugman for giving up economics to become one of the dumbest left-wing political commentators on the planet. So I was pleasantly surprised to see this article, "Our Giant Banking Crisis—What to Expect," by Krugman and his wife, Robin Wells. It's an intelligent analysis, and contains almost no fatuous ideological nonsense. NY Review of Books

Army of rats invades Manhattan's Upper East Side. No, we're not talking about bankers, lawyers or politicians. WSJ

The Taliban is escalating violence in Kandahar with bombings, as Nato forces prepare to launch the next major offensive of the Afghanistan war. CS Monitor

Hardline Iranian cleric Hojatoleslam Kazim Sadeghi, says women and girls who "don't dress appropriately" cause promiscuity, and promiscuous girls cause earthquakes. "There is no way other than taking refuge in religion and adapting ourselves to Islamic behavior," he adds. CNN

Ukraine marks the 24th anniversary of the Chernobyl nuclear disaster, that changed all of their lives forever. Deutsche Welle

(Comments: For reader comments, questions and discussion, see the 27-Apr-10 News -- Greece's bonds are hammered, with yields at 13% thread of the Generational Dynamics forum. Comments may be posted anonymously.) (27-Apr-2010) Permanent Link
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26-Apr-10 News -- Nato prepares for attack on Kandahar, Afghanistan

South Korea's defense minister blames warship sinking on torpedo

Nato coalition forces prepare for attack on Kandahar

For what the NY Times describes as the "make-or-break offensive" of the entire Afghanistan war against the Taliban, elite American special forces soldiers have been operating in Kandahar, picking up or picking off insurgent leaders to weaken the Taliban.

Once the major battle begins in the weeks to come, the intent is that the major effect will be carried by the Afghan Army and police units.

The Taliban are also taking steps to prepare for the battle, by stepping up bombings and attacks against contractors, religious leaders and public officials allied with the coalition forces.

South Korea's defense minister blames warship sinking on torpedo

A month ago, the Cheonan, a South Korean navy warship, exploded and sank near North Korean waters, killing 46.

The evidence has increasingly pointed to a North Korean attack, but the South Koreans have carefully avoided saying so, since a direct accusation of that type would inevitably lead to war.

But VOA reports that on Sunday, South Korea's Defense Minister Kim Tae-young said that the evidence is pointing to a torpedo that exploded beneath the boat, creating a powerful shock wand and high-pressure gas bubble that split the ship and sank it.

Although Kim didn't name North Korea, it's generally thought that North Korea is the only place that such a torpedo could have come from.

Tension is building enormously between North and South Korea. Nobody wants a war, but it will take very little additional provocation to start one.

Additional Links

Greece must agree to tough new austerity measures, before it will receive any financial aid from Germany. Reuters

When "The Pill," the oral contraceptive for women, was announced in 1954, it was thought that it would end poverty, divorce, and unwed pregnancy. NY Times

Top ten Goldman Sachs excuses. David Letterman

How to fight debt collection agencies. NY Times

(Comments: For reader comments, questions and discussion, see the 26-Apr-10 News -- Nato prepares for attack on Kandahar thread of the Generational Dynamics forum. Comments may be posted anonymously.) (26-Apr-2010) Permanent Link
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25-Apr-10 News -- N. Korea's 'human torpedoes' may have sunk S. Korea's warship

Thailand's prime minister rejects protestors demands.

N. Korea's 'human torpedoes' may have sunk S. Korea's warship

A month ago, the Cheonan, a South Korean navy warship, exploded and sank near North Korean waters. Only 58 people were rescued out of 104 crew members, and the other 46 drowned. The evidence has increasingly pointed to a North Korean attack, but the South Koreans have carefully avoided saying so, since a direct accusation of that type would inevitably lead to war.

But in a highly emotional televised speech last week, South Korea's President Lee Myung-bak promised "resolute and unwavering" action over the warship sinking, once the investigation has been completed.

The investigation has been proceeding, and now South Korea's Chosun news agency reports that military officials are focusing on "human torpedoes," like Islamist suicide bombers, or like Japanese "kamikaze" or "kaiten" pilots in WW II.

Human torpedo - artist depiction <font size=-2>(Source: Chosun)</font>
Human torpedo - artist depiction (Source: Chosun)

According to the article, defectors from North Korea have reported that human torpedoes are among the most elite of the country's soldiers.

Tensions have been growing between North and South Korea, as it appears more and more likely that the North Koreans will be blamed, Xinhua reports that North Korean leader Kim Jong-il has said that the North Korean army is "fully prepared" to defeat the South Korea enemy, if it comes to war.

U.S. administration officials are calling for a return to the six-party talks on North Korea's nuclear weapons development, but at the same time, Indian Express reports that North Korea is preparing for a new nuclear bomb test.

Further violence feared in Thailand as anti-government demands are rejected

Anti-government "red-shirted" protestors offered to end their demonstrations if prime minister Abhisit Vejjajiva called new elections within 30 days.

But CNN reports that Abhisit has rejected the call for new elections.

The protests have gone on a lot longer than anyone ever expected, and they've shut down a large part of Bangkok's shopping district.

There have already been killings, first by the army shooting at protestors, and then, last week, by explosive grenades apparently launched by the protestors.

Military officials have expressed reluctance to use force against the protestors, but the government may order them to if the protests continue much longer.

From the point of view of Generational Dynamics, Thailand is in a generational Awakening era, and so the demonstrations may go on for a long time, possibly for years, but they won't spiral out of control into a civil war, since a crisis civil war is impossible during a generational Crisis era.

Additional Links

The German media have been mostly hostile to Greece's request for financial aid from the European Union and the International Monetary Fund, since Germany would end up having to pay for most of the aid. Reuters

To stop a rout, the EU must commit to the bailout. But, as investors have made clear, the turmoil doesn't end with Greece. Speculators will then target Portugal, Spain and Ireland. NY Times

Palestinian President Mahmoud Abbas is urging the Obama administration to impose a forced solution on both Israel and the Palestinians, giving the Palestinians an independent state. From the point of view of Generational Dynamics, a forced solution has no chance at all of succeeding. Haaretz

Voters may be turning against labor unions. In New Jersey elections last week, budget increases were rejected for districts where teachers unions refused to accept wage freezes. Asbury Park Press

Kelsey Grammer, the former star of the situation comedy "Frasier," and currently appearing on Broadway in "La Cage aux Folles," is launching the RightNetwork, a venture aimed at Tea Party supporters. Times Online

Armenia is marking the 95th anniversary of the World War I killing of Armenians by Ottoman Turks. Those killings have been a major issue for decades, with the Turks calling them casualties of war and the Armenians calling them genocide. And now, a deal between Turkey and Armenia to establish diplomatic ties and reopen their common border has collapsed. Washington Post

(Comments: For reader comments, questions and discussion, see the 25-Apr-10 News -- N. Korea's 'human torpedoes' may have sunk S. Korea's warship thread of the Generational Dynamics forum. Comments may be posted anonymously.) (25-Apr-2010) Permanent Link
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The politics of the 'Tea Party' movement

'Generation Zero's Steve Bannon gives blowout speech at NYC Tea Party

If you want to understand why people flocking to the "Tea Party" are so angry, then forget the crap you've been reading in the NY Times, and consider the following quote:

"How did the destruction of the American financial system, the world financial system, and the American financial system -- tell me, how did that happen, when the biggest enemies we've had in the last 100 years -- the Nazis, the Communists, the Fascists, Imperial Japan, even Osama bin Laden -- not one of our enemies could ever destroy our financial and political system. They couldn't even imagine it. How did it happen? Quite easily.

In the last 20 years, our financial elites and the political class have taken care of themselves and led our country to the brink of ruin."

This encapsulates why a lot of people are furious. And long-time readers of the web site are well aware how furious I am at what's been going on, and that I was furious years before the "Tea Party" was even launched (early in 2009). I'm not a member of, or participant in, the "tea party" movement, but I identify with much of their anger, and I see them as having adopted MY anger, rather than the other way around.

The last 20 years include both Republican and Democratic administrations, and both Republican and Democratic Congresses. This is not about party ideology or party politics. It's about greed and arrogance on the part of elite financial engineers and their managers, politicians and journalists, who take the attitude that they can use their power and influence to screw anyone they want for their own personal gain.

The above quote is from a speech given by Steve Bannon, the writer and director of the documentary movie Generation Zero that I've discussed in the past, and in which I appear as commentator. (See "More on the politics of the 'Generation Zero' movie" and "New York City premiere of Generation Zero documentary movie.")

Now, if you'd like to read some mainstream media crap about the Tea Party, read the column by Dana Milbank in the Washington Post.

But if you really want to understand why Tea Party people are so angry, then spend ten minutes listening to this video of Steve Bannon's speech last week. The above quote is at the 2:00 point.

The Republican 'civil war'

An analysis by Kimberley Strassel in the WSJ describes how the tea party movement is splitting up the Republican Party for the same reasons that it's attracting Democrats.

She says: "The Republican Party is split. But the real divide is between reformers like Mr. Rubio and Wisconsin Rep. Paul Ryan, who are running on principles and tough issues, and a GOP old guard that still finds it politically expedient to duck or demagogue issues. As Republicans look for a way out of the wilderness, this is the rift that matters."

Speaking for myself, I'm just as furious at Republicans who caused this problem as I am at Democrats. When I read how some banker defrauded the public, I don't say to myself, "Oh, he's a Republican, so that's OK," or "Oh, he's a Democrat, so that's fine." I couldn't care less what party they belong to. Politicians of both parties have turned into crooks. As far as I can tell, this attitude is shared by a lot of people in the Tea Party movement, as well.

As I've been saying for years, long before the Tea Party started, America is headed for a new political consensus that will throw under the bus almost all of the agenda developed by the Boomers on the right AND left since the 1960s. The Boomers believe that they changed the world, but the world is about to change them.

From the point of view of Generational Dynamics, this major political realignment is coming, and today it looks like the Tea Party is going to play a role. It obviously makes the Democrats very unhappy, but it's also splitting the Republicans. Take whatever partisan pleasure you'd like from that statement, but in the end, no one is going to be happy about what happens.

Why do they disapprove of President Obama?

A recent NY Times / CBSNews poll finds that Tea Party supporters are wealthier and more educated than the general public. They're more likely to be older -- from the Boomer and Silent generation.

But one thing that always seems to unite them is that they highly disapprove of President Barack Obama and his policies. This has caused the leftist loons to accuse Tea Partiers of everything from racism to stupidity. (Do you remember the Presidential campaign, when Hillary Clinton was running against Obama, and Bill and Hillary Clinton were being called racists? Opposing President Bush's policies was considered patriotic, but opposing President Obama's policies is considered racist.)

The reason that Boomers disapprove of Obama is because Obama, like many Generation-Xers, hates Boomers. I've written about this several times. (See "Barack Obama to Boomers: Drop dead!" and "The nihilism and self-destructiveness of Generation X." Also, with regard to the health care debate last year, see "The Revenge of the Boomers.")

It's as simple as that. Obama and his supporters are constantly directing contemptuous remarks at Boomers, and so Boomers disapprove of Obama.

The Pew poll on trust in government

A related but separate phenomenon from the Tea Parties is the increasing distrust in government felt by people in all generations.

A recent Pew Research Poll finds that:

"By almost every conceivable measure Americans are less positive and more critical of government these days. A new Pew Research Center survey finds a perfect storm of conditions associated with distrust of government – a dismal economy, an unhappy public, bitter partisan-based backlash, and epic discontent with Congress and elected officials.

Rather than an activist government to deal with the nation’s top problems, the public now wants government reformed and growing numbers want its power curtailed. With the exception of greater regulation of major financial institutions, there is less of an appetite for government solutions to the nation’s problems – including more government control over the economy – than there was when Barack Obama first took office.

The public’s hostility toward government seems likely to be an important election issue favoring the Republicans this fall. However, the Democrats can take some solace in the fact that neither party can be confident that they have the advantage among such a disillusioned electorate. Favorable ratings for both major parties, as well as for Congress, have reached record lows while opposition to congressional incumbents, already approaching an all-time high, continues to climb.

The Tea Party movement, which has a small but fervent anti-government constituency, could be a wild card in this election. On one hand, its sympathizers are highly energized and inclined to vote Republican this fall. On the other, many Republicans and Republican-leaning independents say the Tea Party represents their point of view better than does the GOP."

The article is accompanied by a graphic that shows the changing levels of trust in government over time, since the 1950s:

Public Trust in Government: 1958-2010  <font size=-2>(Source: Pew Research)</font>
Public Trust in Government: 1958-2010 (Source: Pew Research)

This is another one of those many cases where the generational interpretation is so obvious that it almost screams at you. But mainstream media is completely oblivious to it. The Pew Research article tries to explain in terms of Presidential personalities, but in the end, it all comes down to generations.

As with all generational crisis wars, World War II united the country behind the government, and trust in government remained very high during the Recovery era that followed the war. Trust began to fall sharply in the generational Awakening era of the 1960s-70s. That was time of political chaos in America, with assassinations, long hot summers of street violence, and bombings by the Weather Underground.

Incidentally, you can see the same thing happening in countries that are in generational Awakening eras today, including Lebanon, Iraq, Iran and Thailand. There's political chaos in all of these countries, like America in the 1960s, and trust in government is plummeting.

In America, trust bobbed up and down and up during the generational Unraveling era of the 1980s and 1990s, but has been falling sharply since the generational Crisis ear began in the early 2000s.

This is all following the generational script. Right now, trust in government has fallen extremely low, and continues to plummet.

And there's one more thing. As I've been saying for years, many bankers are going to go to jail. That's part of the same phenomenon.

Distrust is turning into public anger and fury, and the Tea Party is rising out of that anger, and will have its revenge.

(Comments: For reader comments, questions and discussion, see the Generation Zero - The Inconceivable Truth thread of the Generational Dynamics forum.) (25-Apr-2010) Permanent Link
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24-Apr-10 News -- Greece, near bankruptcy, makes formal request for aid

Arizona governor signs tough immigration law called 'misguided' by Obama

Greece finally makes a formal request for aid

As regular readers of the web site are well aware, it's been obvious for at least a couple of months that Greece is headed for bankruptcy, and that the carnival shows that EU officials put on week after week offered only palliatives. In particular, the EU finally offered a non-bailout bailout. This was a promise of money that would be given only if Greece were about to default, and only if then all the EU states agreed to it. The silly hope was that this mere promise of a future consideration of a bailout would alone be enough to restore investor confidence in Greece.

On Friday, Greece finally "pulled the trigger," and formally asked for the non-bailout bailout package of 30 billion euros.

The letter (PDF) was sent by George Papaconstantinou, Greece's Minister of Finance, to Eurogroup officials, and contained only one sentence:

"Dear Sirs,

In accordance with the Statement of the Heads of State and Government of 25 March 2010 to provide financial support to Greece, when needed, and the follow up Statement of the Eurogroup, Greece is hereby requesting the activation of the support mechanism.

George Papaconstantinou"

Greece's financial deterioration had been gathering momentum, as we've been reporting on an almost daily basis for several weeks. And other countries, especially Portugal, were beginning to suffer from Greek "contagion," meaning that they were showing the same symptoms as Greece.

In fact, Europe appears to be approaching full-scale panic, as can be seen from the following graph from FT Alphaville of credit default swap (CDS) prices from debt from Greece and Portugal:

CDS prices for debt from Greece and Portugal, 2007-present <font face=Arial size=-2>(Source:</font>
CDS prices for debt from Greece and Portugal, 2007-present (Source:

Recall that a CDS is a kind of insurance policy, where the insurance will be paid if the underlying debt defaults. If the CDS price increases, it means that insurers are demanding more money to insure the debt, and investors are losing confidence that a default can be avoided. The above graph shows that Greece's CDS prices are going parabolic, and Portugal's are close behind.

Furthermore, Greece is facing a hard deadline. The country has about 2 billion euros in available reserves, but needs to make payments of 11 billion euros on existing debt on May 19.

This is a freight train careening out of control, headed for a smashup. Will Friday's request for aid stop the freight train, or at least slow it down? We'll see on Monday.

The headwinds are enormous. The 30 billion euros of aid would come from other EU countries. Germany would have to contribute the most -- 8.4 billion euros. Bloomberg quotes German chancellor Angela Merkel has already said that any aid package would depend on Athens satisfying "very stringent conditions."

Those conditions would require additional austerity on the part of the Greeks. Thousands of people from Greece's communist-linked public sector unions marched in Athens on Friday, in protest against the request for aid, as reported by Al-Jazeera. And ongoing demonstrations for next week, and the weeks to come.

Even if the aid package is finalized, then Greece's and Europe's troubles are not over. First of all, the 30 billion euro aid package is only a down payment -- Bloomberg quotes Steven Major, global head of fixed-income research at HSBC Holdings Plc in London, as saying that more than 45 billion euros will be needed beyond this year. Germany didn't like paying reparations to France in the 1920s, and I doubt that they'll tolerate paying "reparations" to Greece in the 2010s.

And even if all those problems are solved, it looks like an aid package for Portugal will be required next.

This is actually going to be fascinating to watch.

Derivative market explosion

Yesterday I wrote about interest rate derivatives are a ticking time bomb.

Credit default swaps (CDSs) are insurance policies that protect the buyer against default of the underlying debt. Interest rate swaps are insurance policies that protect the buyer against changes in interest rates. Both of them are in the category of credit derivatives.

The Bank of International Settlements indicates that in June, 2009, there $604 trillion (notional value) of outstanding derivative contracts, and over half of these, $341 trillion, were interest rate swaps.

A Washington Post article by Ezra Klein provides a picture of the explosive growth of the derivatives market:

Derivative Market - explosive growth since 1999 <font size=-2>(Source: Washington Post)</font>
Derivative Market - explosive growth since 1999 (Source: Washington Post)

This is the major feature of today's global financial system. The size of the American economy is around $14 trillion, which is an anthill compared to the Mount Everest of interest rate swaps. And as yesterday's article indicated, there are the same kinds of fraud for interest rate swaps as there were for the mortgage-backed CDO securities that caused the financial crisis so far.

The big difference is the size. There were only a few trillion dollars of CDOs, and they continue to cause a great deal of trouble.

There are a few HUNDRED trillion dollars of interest rate swaps. These are numbers that are almost unimaginably huge.

CDOs are being written down 50-75%. If interest rate swaps are written down only 5%, that would be a loss of $15 trillion around the world. That would be a huge dislocation. And if that 5% becomes 30%, then the loss would be comparable to the values of all the real estate and businesses in the world.

Arizona governor Jan Brewer signs tough immigration law

On Friday, Arizona governor Jan Brewer signed the toughest law against illegal immigration in the country. Church groups, the government of Mexico and civil rights groups opposed the bill, and President Obama called the bill "misguided," according to the LA Times.

Protests against the law have already begun in Arizona, and the law may encounter national opposition.

Several web site readers have written to me objecting to my use of the "xenophobia" to describe the growing public support in Arizona for this law.

In the comments section in the Generational Dynamics forum, one person asked, "A nation protecting itself and its citizens by enforcing Immigration laws (already on the books) against ILLEGAL intruders is 'xenophobia that leads to wars?'" From there, the writer went on to become completely hysterical.

This goes to show how strong the emotions are surrounding this issue.

For one thing, "xenophobia" is one of my favorite words in the English language. (Can anyone guess why?)

But more important than that, the words encapsulates the emotions that are driving this issue. As I've said many times, Generational Dynamics deals with the behaviors and attitudes of large masses of people, entire generations of people. And "xenophobia" describes a fairly common attitude during generational Crisis eras.

In the forum, member "ridgel" responded as follows:

"I agree with your sentiment, but I think John is right here. Whether you call the trend xenophobia or self-preservation, it is increasing. It was nearly impossible ten years ago to discuss limiting immigration, even illegal immigration, without being accused of racism. And people living outside of the South West didn't understand it at all. But now any article on illegal immigration in the newspaper gets hundreds of comments with at least a 5:1 ratio in favor of enforcement. That's a sea-change of opinion. And it was starting before the economy turned down, although the recession made it much stronger.

Mexico is in a world of hurt. Their three main export revenue sources, oil, remittances, and tourism are all way off. Because of the decline in their main Cantarell field, they may become oil importers in the next few years. Remittances are way off, I've seen estimates of 20-30% as Mexicans formerly employed in construction and hospitality are layed off. And tourism has been hurt by both the recession and the drug violence. Speaking of drug violence, that's just about the only viable industry left for the common Mexican at this point. And cities like Ciudad Juarez, just south of El Paso, are basically in open warfare at this point."

The "sea change of opinion" is exactly the point. Whether it's good or bad -- and there are plenty of people on both sides of this issue -- there is no doubt that things have changed dramatically in the attitudes of Americans on this subject. The Arizona law is just the beginning of the controversy.

Additional Links

U.S. investors don't think that the Greece problem is any problem at all. The stock market bubble on Wall Street continues to grow, and Friday's session pushed the bubble to new highs since the 2007 credit crunch. Bespoke Investment

Now we know why SEC employees never got around to prosecuting Bernie Madoff. They were spending hours watching porn when they were supposed to be working. CNN

As we've been saying for years, China plans to confront American ships throughout the Pacific and Indian oceans. It's already beginning, and military officials are expressing surprise at how quickly it's happening. NY Times

Free meals in Denmark. All you have to do is ride an exercise bike attached to a generator at the Crowne Plaza Hotel in Copenhagen long enough to produce 10 watt-hours of electricity, and you get a free meal. BBC

(Comments: For reader comments, questions and discussion, see the 23-Apr-10 News -- Greece, near bankrupcy, makes formal request for aid thread of the Generational Dynamics forum. Comments may be posted anonymously.) (24-Apr-2010) Permanent Link
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23-Apr-10 News -- Torrents of bad financial news for Greece and Europe

Grenades explode in Bangkok, Thailand, with dozens of casualties.

Torrents of bad news, as Greece lurches uncontrollably towards financial default

Bad news came in gushers on Thursday, for Greece and Europe:

All of these indicators appear to be accelerating in the wrong direction, implying that Greece and Europe are experiencing a classic full-scale panic. It's like a huge ball rolling downhill that keeps gathering momentum until it can no longer be stopped. There's a very real possibility that a full-scale crash is imminent, though of course this isn't the first time I've said that. At the very least, some kind of financial dislocation appears to be coming very rapidly.

Grenades explode in Bangkok, Thailand, with dozens of casualties

The NY Times reports that there are fears that wider violence will be ignited after multiple grenades exploded on Thursday in the heart of Bangkok's business district, killing 3 people and wounding dozens.

The red-shirted anti-government protestors have virtually shut down Bangkok's business district. Thousands of Thai soldiers have been deployed to prevent the demonstrators from spreading further into other areas. It was in the context of this faceoff between the army and the demonstrators that the grenades exploded. Protest leaders denied that they had anything to do with the explosions, but army leaders claim that the grenades came from the area occupied by the demonstrators.

There are fears that the violence will escalate into a full-scale civil war.

But Thailand is in a generational Awakening era, and so such a civil war is impossible.

We've discussed this many times on this web site, with regard to other countries in Awakening eras, including Lebanon, Iran and Iraq. There have been protestors and violence in each of these countries, but any violence that broke out fizzled fairly quickly.

It's worth remembering, for comparison purposes, that there was plenty of violence during America's last Awakening era, in the 1960s-70s. There were assassinations of President John Kennedy, his brother Bobby Kennedy, Martin Luther King, Malcolm X. There were riots and bloodshed at the 1968 Democratic national convention, several "long, hot summers" of riots in the streets, bombings by the Weather Underground, and shootings at Kent State.

This kind of violence occurs during generational Awakening eras, and it will probably get worse before it gets better in Thailand. But it will not spiral into full-scale civil war.

Interest rate derivatives are a ticking time bomb

We talk about the dangers of credit default swaps all the time, but the most popular types of derivatives are interest rate swaps.

Both of them are insurance policies, but credit default swaps pay off when the underlying debt defaults, and interest rate swaps pay off when interest rates change.

The thing is that there are hundreds of trillions of dollars (nominal value) of securities based on interest rate swaps in portfolios of financial institutions around the world. Thus a major change in interest rates, such as a rate increase by the Fed, the European Central Bank or the Bank of Japan, might trigger huge payouts at institutions around the world. And since these derivatives are highly correlated, there is a potential for tens of trillions of dollars to be due from sellers to buyers all at once.

A guest post at Yves Smith's Naked Capitalism blog on Thursday is an excellent overview of the systemic dangers of interest rate swaps.

The article shows that interest rate swaps have been marketed to investors even more fraudulently than mortgage-backed securities were marketed several years ago.

Additional Links

The Russians are already angry at the US for allowing the drug trade to grow in Afghanistan, since most of the drugs end up on the streets of Russia. Now the Russian media are wondering if the recent Kyrgyzstan coup was engineered by the drug trade, with the encouragement of the US. The result is a growing Russian-Uzbek alliance against Kyrgyzstan. Asia Times

Although Kyrgyzstan is right on China's border, China is playing it cool as Russia and the US battle for prestige in Kyrgyzstan. However, jihadists in Pakistan and Afghanistan are heading for the Fergana Valley, at the intersection of Kyrgyzstan and Uzbekistan, and a hot summer may lie ahead. Asia Times

When Chinese hackers infiltrated Google's network, the result was increased xenophobia on both sides, with both the US and Chinese increasingly believing that the other side is hacking their computers. Fierce Gov IT

Germans are shocked at the revelation by Google that Germany is number 2 in the world in censoring online content, way ahead of its European neighbors. This has led to some soul-searching. Spiegel

News you can use: FAQ on Eyebrow Grooming for Men.

Buying carbon offsets may ease eco-guilt but not global warming. CS Monitor

On Friday, Leonard Nimoy will visit Vulcan, Alberta, to anoint the town as the "Official Star Trek Capital of Canada." After that, he's hanging up his Spock ears for good and retiring. Vancouver Sun

(Comments: For reader comments, questions and discussion, see the 23-Apr-10 News -- Torrents of bad news for Greece and Europe thread of the Generational Dynamics forum. Comments may be posted anonymously.) (23-Apr-2010) Permanent Link
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22-Apr-10 News -- Controversy over Arizona immigration law

Greece's financial problems are spreading around Europe

Proposed Arizona immigration law sparks international controversity

Arizona Governor Jan Brewer is almost certain to a tough immigration bill, according to the Phoenix Business Journal. The law expands police powers to arrest illegal immigrants, and requires the police to check the papers of any who seems suspicious.

The law is motivated by recent crimes perpetrated by illegal immigrants, including the murder of a rancher. But opponents, including Hispanic groups and the Catholic Church, say that the documentation requirements for immigrants smacks of a police state.

According to the article, Brewer will almost certainly sign the bill because a veto would mean that she would probably lose the Republican primary election.

The controversy is taking on national and even international importance.

Mexico's Foreign Relations Department said that the proposed law "could have potentially serious effects on the civil rights" of Mexican nationals.

If the law is signed, it's possible that either the Obama administration or a federal court will intervene,

From the point of view of Generational Dynamics, this kind of xenophobia is typical of a generational Crisis era. We see it targeting the Muslims in Europe and the Christians in India. During a generational Crisis era, this kind of xenophobia grows until it results in war.

Greece's problems spread to Spain and Portgual

I've noticed that many commentators are talking as if Greece has already been bailed out, and it's just a matter of signing a few papers to give Greece its 45 billion euro bailout package from the EU and the IMF.

However, nothing could be further from the truth. Any proposed aid package would have to be reviewed by the German Bundestag (parliament) and Verfassungsgericht (constitutional court), and will face other legal challenges, before any money can be delivered to Greece, and it's altogether possible that the legal challenges will succeed.

Almost every day, Greece's financial situation plummets deeper and deeper into a hole. On Wednesday, according to Bloomberg, credit default swap (CDS) prices -- the cost of insuring Greek debt -- surged to a fresh record of 495, meaning that it costs 495,000 euros to insure 10 million euros of Greek debt for a year. Typical CDS prices before the financial crisis were around 20-30.

Furthermore the yield (interest rate) on Greek 10-year bonds spiked to 8.29%. It was just a couple of weeks ago that Greek officials were alarmed that it had risen above 6%. Interest rates seem to go up by 20-30 basis points almost every day.

Of even greater concern to officials is that it appears that the Greece problem is spreading to other European banks, according to Bloomberg. European banks in general were affected, but Spanish and Portuguese banks led the way with CDS prices for their banks surging to 265 and 269.5 for the respective countries.

This comes on top of a report that Spanish banks' bad loans rose by $2.8 billion in February, to a 14 year high, according to Reuters.

From the point of view of Generational Dynamics, the global financial system is headed for a deflationary crash and a global crisis with certainty. It's impossible to predict with certainty what will trigger that crisis, but more and more each day it looks like it will begin in Europe.

Additional Links

The Fabulous Fab -- referring to Fabrice Tourre, the Goldman Sachs VP whom the SEC accused of fraud along with Goldman Sachs itself -- has agreed to testify in the Senate. That will be a fun day. Bloomberg

With Japan experiencing deflation almost continuously for 20 years, Japanese politicians are demanding that the Bank of Japan adopt a mandatory inflation target, so that inflation will end. The BOJ says that inflation targeting does not work, which is true. Reuters

Mensa Selects Its Favorite Brainy Games of 2010. Wired

For those who, like me, experience sleep apnea, you might try rebalancing your circadian rhythms. NY Times

News you can use: A survey of 1,500 women by Phone 4u finds that men who have an Apple iPhone are more attractive to women than those who do not. "If he has an iPhone then he's obviously intelligent and well-off." Fox Business

For years I've been writing about how Iraq is in a generational Awakening era, like America in the 1960s. Now here's another sign: The art community is blossoming in Baghdad, just like it did in Greenwich Village and Haight Ashbury. Spiegel

Ukraine's new pro-Russian government has signed a deal with Russia that gives the Russians 25 years of access to the Sevastopol naval base on the Black Sea, in exchange for a 30% discount on natural gas. This appears to end a bitter feud that intensified during the Russian war with Georgia, but opposition pro-Western politicians in Ukraine are accusing the government of treason. CNN

(Comments: For reader comments, questions and discussion, see the 22-Apr-10 News -- Controversy over Arizona immigration law thread of the Generational Dynamics forum. Comments may be posted anonymously.) (22-Apr-2010) Permanent Link
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21-Apr-10 News -- Ethnic violence grows in Kyrgyzstan

IMF issues a warning on sovereign debt.

Medvedev orders protection of Russians in Kyrgyzstan as ethnic violence grows

It's been two weeks since Kyrgyzstan's government collapsed after violent street protests.

Kyrgyzstan <font size=-2>(Source: CIA Fact Book)</font>
Kyrgyzstan (Source: CIA Fact Book)

President Kurmanbek Bakiyev fled from the capital Bishkek, and is currently hiding out in Minsk, Belarus, under the protection of that government, according to the AP.

Kyrgyzstan's new interim government, led by Roza Otunbayeva, used violence to oust Bakiyev, and is now has to deal with increasing ethnic violence. The violence, by indigenous Kyrgyz, is directed against other ethnic groups, especially Turks and Russians, as reported by the Independent. (By the way, remember that Turks originally came from central Asia; Turkey was named after the Turks that settled there, rather than the other way around.)

The violence includes ethnic murders, torching of houses and cars, and robbery.

Russian President Dmitry Medvedev has ordered his defense minister "to take measures" to protect ethnic Russians living in Kyrgyzstan, according to Bloomberg. According to the CIA Fact Book, the country is 65% Kyrgyz (religion: Muslim) and 12.5% Russia (Russian Orthodox).

News reports do not indicate what "measures" the Russian government plans to take, but one must assume that they would include the introduction of additional Russian soldiers into the country.

Medvedev has been predicting a civil war in Kyrgyzstan. If he's right, then the fighting could spread through the region, and even ignite something in Pakista.

IMF issues a warning about sovereign debt

The International Monetary Fund (IMF) has issued a report that the growing volume of government debt is the biggest single risk to the world economy, according to the Independent.

The offending countries include several countries in Europe, but also include the UK and the U.S.

From the point of view of Generational Dynamics, we're headed for a major global financial crisis with 100% certainty. However, the event that will trigger the crisis is still a question. The Lehman Brothers bankruptcy had a chain reaction effect after it occurred in 2008, and the bankruptcy of a country could have an even worse chain reaction.

Greek bond rates surge even higher as default approaches

The Financial Times reports that "the unthinkable has become thinkable," and market watchers are now increasingly considering the possibility of a Greek default.

As we've been saying on this web site for weeks, a default is not only "thinkable," it's actually all but certain. The theatre that the Europeans have putting on to pretend to be aiding Greece have been nothing but high comedy.

Meanwhile, bond rates and credit default swap prices surged to new highs on Monday, underlining the fact that something very dramatic is going to happen soon.

As if that wasn't enough bad news, Kathimerini (translation) reports that Greece's unemployment rate also surged, to 11.3 in January, compared to 10.2% in December.

Additional Links

Legislation to help the German long-term unemployed has been put on ice, because the possibility of a Greek bailout has thrown the entire German budget into confusion. Now the Germans have one more thing to hate the Greeks for. Euro Intelligence

Younger workers, in their 20s and 30s, are increasingly being asked to take on responsibilities normally reserved for employees with a lot more work experience, since companies are trying save money and cut labor costs. WSJ

The shadow inventory of foreclosed houses keeps growing larger, and will push home prices lower. CNBC

It's the dawning of the Age of Aquarius in London, where the revival of the 1960s musical Hair celebrates the hippie Boomers of the 1960s. Telegraph

The Eyjafjallajökull (ay-yah-FYAH-lah-yer-kuhl) volcano may be shifting from a Surtseyan eruption to a more Strombolian mode. CS Monitor

However, the Eyjafjallajökull volcano is right next door to the Katla volcano, and the eruption of one could well mean an eruption of the other. AP

(Comments: For reader comments, questions and discussion, see the 21-Apr-10 News -- Ethnic violence grows in Kyrgyzstan thread of the Generational Dynamics forum. Comments may be posted anonymously.) (21-Apr-2010) Permanent Link
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20-Apr-10 News -- South Korea may retaliate over sinking of warship

Greece hurtles toward financial default.

Korea's president promises 'resolute and unwavering' action over warship sinking

The issue of the sinking of South Korea's warship three weeks ago took a sharp turn on Monday.

To recap: Three weeks ago, the Cheonan, a South Korean navy warship, exploded and sank near North Korean waters. Only 58 people were rescued out of 104 crew members, and the other 46 drowned. The evidence has increasingly pointed to a North Korean attack, but the South Koreans have carefully avoided saying so, since a direct accusation of that type would inevitably lead to war.

All along I've said that my expectation is that the South Korean government would keep stalling, and would find a way to say that the evidence of a North Korean attack could not be substantiated.

However, Monday's developments have now put that expectation into doubt.

In a rare live televised speech on Monday, South Korea's President Lee Myung-bak made an emotional promise to find the those responsible for the sinking, and to take appropriate action, according to the Korea Times.

South Korean President Lee  Myung-bak wipes away tears during television address.
South Korean President Lee Myung-bak wipes away tears during television address.

President Lee tearfully read out the names of the 46 sailors who had been killed, and said the following:

"As the president, I will ascertain the cause of the Cheonan's sinking to the last detail. I will deal resolutely with the results and make sure such an incident does not recur. I will make our military stronger.

If (the two Koreas) are reunited and genuine peace and prosperity comes to this land, the people will remember your sacrifice again. Your fatherland, which you loved, will not forget you, ever. ...

"A strong military is made not only by powerful weapons but also by strong spirit. What we need now is strong spirit above all," he said. "We need to reflect on ourselves now. We have to find out and fully address what it is that we lack, what the problem is."

My guess is that Lee would have preferred to continue not saying anything, but was forced to make this speech because of the huge and growing fury building up in the South Korean population. This dramatic speech changes everything, since it commits the South Korean government to taking some kind of retaliatory action.

North and South Korea are technically still at war, since the 1950s Korea war ended in an "armistice" rather than a peace agreement. The two sides have been involved in numerous minor military skirmishes over the years, but this one has been growing into the most significant.

It's possible that this situation will spiral into full-scale warfare, but I would imagine that the Americans and the Chinese are already talking to one another about how to bring the two sides under control.

According to Yonhap, the United States State Dept. supports bringing the sinking incident before the United Nations Security Council, if North Korea's involvement is confirmed. Since that would provide an almost ironclad guarantee that nothing would be done, we'll have to see if the South Korean people people are satisfied with that solution.

Cost of insuring Greece's debt surges to new record

Financial inspectors from the European Union and the International Monetary Fund (IMF) were supposed to go to Athens on Monday to discuss the terms of a bailout, but the meeting was called off because of the volcanic ash crisis that has shut down much of Europe's aviation industry. The meeting has now been postponed until Wednesday.

In the meantime, the prices of credit default swaps (CDSs) that insure Greece's debt rose to historic highs, according to Bloomberg.

This means that investors increasingly believe that Greece is going to default, which means that they increasingly believe that there will be NO aid or bailout package. This should be no surprise to regular readers of this web site, which has repeatedly pointed out that each supposed aid plan for Greece has been a farce and a delusion.

Commentators are beginning to catch on that there's no solution to the Greek financial crisis.

The commentary from Frankfurter Allgemeine notes mournfully that Germany will have to pay the largest share of the 45 billion euro bailout, costing each German citizen 100 euros. "But what's the use?" This bailout is just enough to make the current month's payment, and "the debt is still there." The commentary (translated) adds:

"With every escalation of the crisis in Greece, the German government provides a new explanation of its own role as helper. The first [explanation was that] absolutely no money should be given. Next, it was said that we'll provide money, but the money won't actually be claimed by Greece, but [the offer] would calm the capital markets.

The current motto is: We have the money ready as a last resort, but it will cost the public nothing. But even this statement is likely to last only a short period of time.

And the fundamentals justify the distrust. The truth comes closes to the sentence: We will provide the money and we don't know if it's enough, and whether we'll ever see it again."

Because of the great distrust and opposition by the German people and because of the inevitable challenges in Germany's Verfassungsgericht (constitutional court), it's hard for me to believe that Germany will ever provide any bailout money.

The attitude is growing that if Greece is going to default sooner or later, then it might as well default sooner, and save everybody else some money.

This brings us to the commentary by Wolfgang Münchau in Financial Times.

You may recall that last week I quoted Münchau as saying that Greece would not default this year, but would default next year.

Now he says,

"The European Union finally agrees a bail-out, and the much-predicted rally of Greek bonds turns into a rout. A week later, spreads on Greek bonds had reached their highest levels since the outbreak of the crisis. The financial markets have recognised that, bail-out or no bail-out, Greece is in effect broke."

Once again, Münchau makes that case that there's no point in bailing out Greece, because Greece is going to default anyway.

What would it take to save Greece from default? Greece would have to implement very severe additional austerity measures, such as raising taxes, cutting pensions, cutting spending and wages, and increasing the retirement age. In fact, that's what the IMF and EU officials will tell the Greeks during their meeting on Wednesday.

However, Greece has already raised taxes and cut spending. According to Bloomberg, Greece’s biggest unions threatened new strikes and a “social storm” if the government cuts pension benefits. Civil servants already plan their third 24-hour strike of the year for Thursday, to protest the austerity measures.

Additional Links

Remember how the SEC ignored one warning after another about Bernie Madoff's Ponzi scheme? Well, apparently the SEC also ignored warnings about another Ponzi scheme, the one operated by R. Allen Stanford. USA Today

A European Union commissioner has declared that vacations are a "human right," and that anyone too poor to afford vacations should have them subsidized by the taxpayer. Times Online

For techies: How Google's Chinese hackers infiltrated the software developers' computers, and gained access to Google's top secret source code. NY Times

China's real estate bubble has led to the construction of millions of shoddy buildings. China Daily

Cuba's Roman Catholic cardinal says that the country is in its worst political crisis, as people are demanding that changes be made immediately. NY Times It sounds like Cuba is close to having its Awakening era climax crisis.

A new suicide bombing in Peshawar, Pakistan, kills 23. BBC

Kenya is being very hard hit by grounded European airplanes, as 1,000 tons of Kenyan produce and flowers per day cannot be shipped to Europe. VOA

(Comments: For reader comments, questions and discussion, see the 20-Apr-10 News -- South Korea may retaliate over sinking of warship thread of the Generational Dynamics forum. Comments may be posted anonymously.) (20-Apr-2010) Permanent Link
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19-Apr-10 News -- Threats of summer war in the Mideast

Israelis fear Scud missiles in Lebanon, and Iran's nuclear development.

Stories of Hizbollah receiving Scud missiles raises Mideast tensions

Since the death of Yasser Arafat in 2004, there have been three wars in the Mideast: Israelis vs Hizbollah in Lebanon in 2006, Palestinian Fatah vs Hamas in Gaza in 2008, and Israelis vs Hamas in Gaza in 2009. It's possible that a new war is approaching.

All three of these wars have ended, but not definitively. Each war was left in a kind of limbo, where both sides agreed to stop shooting at each other for a little while.

Thus, threats of a fourth war, this summer, are not exactly a far-fetched thought.

The thoughts of war are being triggered by a report by Israeli intelligence that Syria is supplying long-range Scud ballistic missiles to Hizbollah in Lebanon.

During the 2006 war between Israel and Hizbollah, Hizbollah launched missiles at Israel, but they weren't long range enough to reach Tel Aviv or Jerusalem. The Scud missiles would have that capability.

The result is that Israel has sent a secret warning to the Syrians that if Hizbollah launches missile attacks on Israel, then Israel will launch retaliation against Syria itself, according to the London Times. An Israeli minister, speaking off the record, says, "We’ll return Syria to the Stone Age by crippling its power stations, ports, fuel storage and every bit of strategic infrastructure if Hezbollah dare to launch ballistic missiles against us."

These words may seem a bit apocalyptic, but this is exactly the kind of attack that Israel launched on Lebanon in the 2006 war with Hizbollah.

In other words, if Syria is playing the game Let's You and Him Fight, trying to provoke a war between Israel versus Hizbollah in Lebanon, then Israel is saying that Syria will be in the fight this time.

On the other hand, Syrian Foreign Minister Walid Moallem is saying that Syria has NOT supplied Scud missiles to Hizbollah. Lebanon's Daily Star quotes him as saying, "There is no smuggling of missiles and basically the whole story is fabricated by Israel."

Overlaying this entire discussion is the continuing threat of nuclear weapons development in Iran, and the concern that Israel may decide to attack an Iranian nuclear facility.

From the point of view of Generational Dynamics, Lebanon, Syria and Iran are all in generational Awakening eras, and the people in these countries are quite resistant to another war.

Israel, on the other hand, is in a generational Crisis era, and its people feel very anxious and threatened by Hizbollah and Iran.

We've already seen what can happen by reviewing the summer 2006 Israeli/Hizbollah war in Lebanon. Israel, in a generational Crisis era, panicked and fought the war in a "hot" fashion, with maximum force. Hizbollah warriors, in a generational Awakening era in Lebanon, fought the war in a "cool" fashion, launching missiles and returning home to the arms of their wives. (See: "Israel/Lebanon war forces Muslims to choose," and "How Israel panicked in pursuing the summer Lebanon war with Hizbollah.")

The Lebanese people were greatly shocked by what they considered to be Israel's overreaction in the 2006 war. Recall that the war was triggered when Hizbollah kidnapped two Israeli soldiers on the border between Lebanon and Israel. Israel's response was completely panic-driven. Israel went to war in four hours, with no plan, no objective, and no idea what was going on.

Israel learned a lot of lessons from that war, but it does not mean that there won't be another war. It only means that if Israel decides to go to war again, it will be with a clear plan and set of objectives.

Thus, providing Scud missiles to Hizbollah, or even just THREATENING to do so, is like waving a red towel in front of a bull. As the Jerusalem Post puts it, Israel and its enemies rely on a precarious equilibrium which permits both sides to demonstrate just enough deterrence without provoking a war. The addition of Scud missiles distrubs that precarious equilibrium.

Additional Links

In Thailand, the red-shirted demonstrators may soon have to face their political opposition, the yellow-shirted demonstrations. Straits Times

(Comments: For reader comments, questions and discussion, see the 19-Apr-10 News -- Threats of summer war in the Mideast thread of the Generational Dynamics forum. Comments may be posted anonymously.) (19-Apr-2010) Permanent Link
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18-Apr-10 News -- North Korea denies sinking South Korean warship

China vows to stop the 'last madness' of the real estate bubble.

North Korea denies sinking the South Korean ship Cheonan

It's been three weeks since the Cheonan, a South Korean navy warship, exploded and sank near North Korean waters. Only 58 people were rescued out of 104 crew members, and the other 46 drowned.

The DPRK (Democratic People's Republic of Korea, the official name of North Korea) has remained silent about the incident until now, even though suspicions have been growing that the explosion was caused by a DPRK military strike.

On Saturday, for the first time, the DPRK spoke out on the incident, denying any involvement, and claiming a frame-up by the South Koreans.

Xinhua quotes a DPRK official as saying, "Failing to probe the cause of the sinking of the ship, the puppet military warmongers, right-wing conservative politicians and the group of other traitors in South Korea are now foolishly seeking to link the accident with the north at any cost." The official added that another aim of the South Koreans is "to justify the persistent and anachronistic policy towards the DPRK and shirk the blame for having driven the inter-Korean relations to the worst crisis."

The South Koreans have been very reluctant to be specific about suspicions about the DPRK, but they did make a statement on Friday.

According to the South Korean newspaper The Hankyoreh, a joint military-civilian investigation team tentatively concluded Friday that the Cheonan was split in half by a water shock wave, or “bubble jet,” resulting from an external explosion. This means that there was no direct strike on the hull of the Cheonan by a torpedo. Instead, a torpedo or mine exploded BENEATH the ship, creating a powerful shock wave or gas bubble that repeatedly expands and contracts. This causes the vessel to rise and fall, and the hull of the vessel splits in two as a result of this shock.

An analysis in the Asia Times, says that the sinking of the Cheonan is to Korea as 9/11 was to America, in that the sinking is a wake-up call to the sea and land threats from North Korea.

The article points out that a North Korean action may have been retaliation for a November incident, when a South Korea ship, similar to the one that was sunk, poured cannon fire onto a North Korean patrol boat, sending it back to port in flames.

This is, in fact, the typical kind of ping-pong situation that leads to a major war during a generational Crisis era: Each side is shocked and surprised by what the other side does, and responds by "crossing the line" even farther than last time, until war is declared.

Right now, it seems to me that the most likely outcome of the current situation is that the South Koreans will conclude that a DPRK strike was the most likely cause, but they'll hedge it in such a way that they can avoid retaliation.

But that will not be the end of it. The South Korea people and military are furious about this incident, and the South will retaliate as soon as there's an opportunity to do so.

China vows to stop the 'last madness' of the real estate bubble

The People's Bank of China (POB) is pledging to implement new lending rules to cool the real estate bubble, and the market's "last madness," according to Bloomberg.

The moves come in the midst of a real estate bubble of truly staggering proportions. In office space alone, there is enough for a 5x5 cubicle for every man, woman and child in China, as we've reported in the past.

POB adviser Li Daokui said that investors "don’t realize how strong and resolute the political will is among top leaders to curb price gains," as the market is having its "last madness."

An example of one of the new rules is that down payments for second homes must be at least 50%, up from 40%.

I have to laugh at the phrase "strong and resolute ... political will" in view the obvious lack of will in formulating rules.

Unfortunately, Li's words almost contradict themselves. He's right that there's madness in China's real estate markets, and in China's financial markets in general. But you can't cure madness by changing a couple of rules. Madness always wins out, especially financial madness.

From the point of view of Generational Dynamics, nothing that the POB does will have any effect on the madness. This is the madness of crowds, the madness of entire generations, and a few rule changes will only cause the speculators to adapt. China is in serious trouble, even more serious than America (as hard as that is to believe), and is headed for a financial crisis of truly historic proportions. The bubble will continue to grow until something triggers a crash, and then the financial crisis will begin.

Additional Links

Two burqa-clad male suicide bombers killed 44 and injured 70 in a refugee camp, among people waiting to receive food. Lashkar-e-Jhangvi claimed responsibility, citing the presence of Shias at the camp as a reason. Pakistan Daily Times. To my knowledge, al-Qaeda/Taliban linked terrorists specifically targeting Shias in Pakistan is new in recent times.

Scientists have wondered for years whether there's water on the moon, and it now turns out that there are billions of tons of water. Cosmos

Last Wednesday's earthquake in China's Qinghai province occurred in a region heavily populated by Tibetans. The Chinese government has mounted a huge relief effort, but the relief effort has exacerbated tensions with Han Chinese, as the Tibetans complain that the Han are using the earthquake as a public relations opportunity. NY Times

(Comments: For reader comments, questions and discussion, see the 18-Apr-10 News -- North Korea denies sinking South Korean warship thread of the Generational Dynamics forum. Comments may be posted anonymously.) (18-Apr-2010) Permanent Link
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17-Apr-10 News -- Goldman Sachs is accused of subprime securities fraud

Backlash is spreading against Greece bailout aid package

SEC accuses Goldman Sachs of fraud in subprime mortgage-backed securities

I believe that this case is a very big deal.

As I understand it, Goldman Sachs is charged with doing the following:

This deal was consummated in early 2007, just before the time that the global financial crisis began, according to NY Times.

Regular readers of this web site are aware that for several years I've been discussing circumstantial evidence that proves that massive fraud must have been taking place over the creation of these CDOs. (See, for example, "Financial Crisis Inquiry hearings provide 'smoking gun' evidence of widespread criminal fraud.")

A principle argument that I've used is as follows: The experts who created these CDOs may not have known in 2002 that their computer models were faulty, but by 2006, when the real estate bubble was bursting, they must have known, but didn't tell investors. Instead, as the real estate bubble continued to burst in 2006-2007, they created and sold CDOs in even greater volume, in order to collect as much as possible in commissions before everything started collapsing.

That's exactly what happened in this case. The WSJ quotes an e-mail message sent by Fabrice Tourre in 2007 as follows:

"The whole building is about to collapse anytime now...Only potential survivor, the fabulous Fab(rice Tourre)...standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities [[sic]]!!!!"

So the "fabulous Fab" knew that a collapse was coming, but he put together and sold this deal anyway, collecting a fat commission by lying to his client, the investor, who ended up losing a billion dollars.

The significance of this case is that, I believe, it will be the first drip of water in an approaching torrent. I've been saying for years that bankers will be going to jail, because that's what happened in the 1930s. As time goes on, a lot more of these fraudulent deals will be discovered.

Backlash is building in Germany and Greece over European aid

Yields (interest rates) on Greek 10-year bonds rose again on Friday, to 7.43%, according to Bloomberg.

It was already clear on Thursday that Greece and Europe were headed for a major crisis, which is why, as we've been reporting, Greece finally "capitulated" on Thursday and asked the IMF for 'consultations' on getting an aid package. So the even higher interest rates on Friday prove that there is no hope for Greece without outside aid.

It's been true for a while that polls have shown strong public opposition in Germany to aiding Greece. That opposition is spreading into a backlash, as economists, business leaders and politicians express opposition to a German contribution. For example, Bloomberg quotes the president of an exporters' lobby group as saying, "I’m stunned. If I as a small or mid-sized business owner conducted myself as Greece did, I’d be held responsible. [Instead, Greece] is being rewarded with offers of loans at subsidized interest rates."

Some radical Germans are even calling for Germany to quit the euro currency and set up a smaller monetary union. The Daily Mail quotes a Morgan Stanley economist as saying that the Greek rescue proposal sets a "bad example," and makes it more likely that the euro area "degenerates into a zone of fiscal profligacy, currency weakness and higher inflationary pressures."

But there's a backlash forming even in Greece, mainly because of the onerous conditions that an IMF bailout would impose on the country, according to the Guardian. The article quotes a left wing Greek leaders as saying "Yesterday was a humiliating day for Greece and Europe. You don't have the popular mandate to allow the IMF to come in," he said, referencing Thursday's actions by Greek prime minister George Papandreou.

More bond sales are scheduled for next week. The situation in Greece is very bad, getting worse every day, and events are unfolding rapidly.

Additional Links

User of Apple iPad tablet computers traveling to Israel are shocked to learn that their iPads get confiscated when they arrive. The government has banned iPad imports. Haaretz

The volcanic ash could that's grounding planes throughout Europe is not expected to have a major economic impact, since the disruption appears unlikely to last continuously over a long period of time. Reuters

(Comments: For reader comments, questions and discussion, see the 17-Apr-10 News -- Goldman Sachs is accused of subprime securities fraud thread of the Generational Dynamics forum. Comments may be posted anonymously.) (17-Apr-2010) Permanent Link
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16-Apr-10 News -- Greece capitulates, asks for aid

South Korea may be close to military action against North Korea

Greece seeks 'consultations' for European and IMF aid

The Greek crisis worsened again on Thursday, when the yield (interest rate) demanded by investors for Greek 10-year bonds soared to 7.22%, according to WSJ, compared with a 3.13% yield on German bonds.

Events continued to move rapidly, as Greece "capitulated to market pressure," according to the Financial Times, and formally sought "consultations" over an aid program.

In a letter to the European Commission, Greece asked to discuss "a multi-year economic policy programme with the Commission, the European Central Bank and the International Monetary Fund."

By not actually requesting aid, Greece avoided the trap that we mentioned yesterday, that an actual request for aid could be interpreted as an actual default on its debts.

Still, events are expected to unfold rapidly now, because Greece's financial situation is deteriorating quickly.

The market is also moving fast with respect to Portugal and Spain, as credit default swap prices for debt for those two countries has been rising. WSJ quotes Gavan Nolan of Markit as saying that "the pressure is mounting on the peripheral euro-zone countries."

Generational Dynamics predicts that the financial crisis is far from over, and we're headed for a sharp deflationary crash. What will trigger this event cannot be predicted, but one possibility is the quickly deteriorating situation in Europe.

South Koreans may be considering military action against North

It's been almost three weeks since the Cheonan, a South Korean navy warship, exploded and sank near North Korean waters. Only 58 people were rescued out of 104 crew members, and the other 46 drowned. And yet, no explanation has yet been provided for the cause of the explosion.

Officially, no cause has been determined, but reading the various press reports increasingly gives the impression that the cause has unofficially been determined to be a North Korean torpedo or sea mine.

If the conclusion is reached that the explosion was caused by hostile military action by North Korea, then it's hard to see how war can be avoided. The 1950s Korean War never officially ended, but remains in a state of armistice to this day. Relations have been extremely tense between the North and South for some time now.

JoongAng Daily quotes Defense Minister Kim Tae-young as saying: "I believe it’s inappropriate for us to presume a North Korean attack when the cause hasn’t been determined yet. But we are developing plans to deal with every possibility. We’re considering military and nonmilitary measures."

Was that a slip of the tongue, or did he really mean that military measures against North Korea are being considered? At any rate, when asked to explain later, he said, "I would like to withdraw what I’d said earlier."

However, he added that "I think it’s the obligation and responsibility for our ministry [to consider military action]."

Operations are under way right now to hoist the sunken stern of the Cheonan from the sea bottom. For those who are interested in such things, here's a neat little diagram of how they're doing it:

South Koreans raise the sunken ship, the Cheonan <font size=-2>(Source: JoongAng Daily)</font>
South Koreans raise the sunken ship, the Cheonan (Source: JoongAng Daily)

Additional Links

Kyrgyzstan’s ousted President Kurmanbek Bakiyev resigned and fled to neighboring Kazakhstan on Thursday. Meanwhile, the US is negotiating an aid package, after Russia agreed to contribute $50 million to the new government. Bloomberg. This is the price one must pay to keep an air base in Kyrgyzstan.

The foreclosure rate for U.S. homes surged in the first three months of this year, indicating that housing prices still have far to fall. Associated Press

Further evidence of the incompetence of Boomer management: Federal workers involved with cybersecurity are far less confident than their bosses that the U.S. is prepared to handle a cyber attack. Fierce Government IT

China's GDP jumped by 11.9% in the first quarter of this year. This is so ridiculously high that even the most Pollyannish pundits are considering the possibility that China's economy is in a bubble. NY Times

Yesterday we told you that Islamist terror groups in Somalia have ordered radio stations to stop playing music, claiming that it's not Islamic. Now the terrorists are ordering school teachers to stop using bells to signal the end of class, because the bells sounded too much like Christian church bells. So teachers are now clapping their hands or banging on tables and doors to signal the end of class. BBC

(Comments: For reader comments, questions and discussion, see the 16-Apr-10 News -- Greece capitulates, asks for aid thread of the Generational Dynamics forum. Comments may be posted anonymously.) (16-Apr-2010) Permanent Link
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15-Apr-10 News -- Six nations discuss sanctions targeting Iran

A European confrontation over Greece appears increasingly likely, and soon.

Tension over Iran's nuclear development grows

Iran's nuclear program <font size=-2>(Source: AFP)</font>
Iran's nuclear program (Source: AFP)

Iran is 3-5 years away from deploying a "usable" nuclear weapon, according to Pentagon officials quoted by the Washington Post.

As Iran's bluster on nuclear technology increases (though Iran says it's only for peaceful purposes), western nations, especially Israel, are becoming increasingly nervous.

One fear is that the Israelis will becoming sufficiently nervous that they'll take military action against Iran.

Thus, six countries, Britain, China, France, Russia, Germany and the United States, have resumed closed-door bargaining to agree on sanctions, according to AFP.

However, it seems unlikely that there'll be any agreement on meaningful sanctions. China's Foreign Ministry spokesman is already quoted by Xinhua as saying that "sanctions and pressure cannot fundamentally resolve the issue." Thus, we can expect them to exercise their veto in the United Nations Security Council if sanctions are put to a vote.

This is just one more example of a situation that won't be resolved until a major crisis forces a resolution.

Arab states express nervousness about nuclear Iran

As we've said many times, the Sunni Muslim Arab states do not welcome a more powerful Iran that wants to gain hegemony over the entire Arabian peninsula.

Thus, a (Saudi Arabian) Al-Arabiya editorial translated by Memri states the problem in a very interesting way:

"We are not afraid of an Iranian bomb. This weapon will not be put to military use; it will be used as a way to change the rules of the game.

What we are afraid of is Iran's policy, that uses all means to force its existence [as a regional power], and nuclear weapons is only [one of these] means. If Saddam [Hussein] had had a nuclear bomb when he invaded Kuwait, it would have remained occupied to this day, because the superpowers would not have risked war with a state with nuclear weapons. If [a nuclear] Iran tomorrow takes over Bahrain – something that is altogether possible – or if its militias take over southern Iraq, no superpower will dare to use military means to stop it. The international community will [only] have the options of conducting negotiations and bargaining with Iran, or of implementing economic sanctions against it – [tactics] that everyone knows never deterred any occupier in the past, and will certainly not deter Iran...

We fear the logic of the current regime in Tehran, which spent the country's funds on Hizbullah, Hamas, the extremist movements in Bahrain, Iraq and Yemen, and the Muslim Brotherhood, and supported every extremist in the region. The Ahmadinejad regime aspires to expansion, hegemony, and a clear takeover on the ground, and to do this he needs a nuclear umbrella to protect him from deterrence by [any] superpower.

The Gulf states, that built giant cities and factories all along the coast, will, when Iran possesses nuclear weapons, become hostage to the caprices of Ahmadinejad and his extremist government...

The region cannot be left to the test of reality. When we find out that the reality is painful, we will have already missed the chance [to change it]."

Saudi Arabia and Iran are challenging one another on many fronts. (See "24-Feb-10 News - Iran captures Jundallah terrorist leader.") So it's not surprising that the Saudis fear that a nuclear-armed Iran would make the situation much worse in the region.

A European confrontation over Greece appears increasingly likely

Once again, the Greeks had a bond sale on Wednesday. And once again, the yields (interest rates) demanded by investors were extremely high -- 6.99% for 2-year notes, according to Bloomberg. This figure is much higher than the 4-5% that Greek politicians have previously said was the most they could afford.

And so the conclusion on Wednesday is the same as it was on Monday and Tuesday -- that the song and dance that went on in Brussels on Sunday was a farce and a waste of time. It accomplished nothing.

The article quotes a director at Fitch Ratings as saying that will soon have to ask the European finance ministers to come through on their promise of aid. "I don’t think Greece would go as far as waiting to be seen as failing in the market. They would prefer to go to the EU. It could well be a week or two. I don’t think they could leave it much longer than that."

If Greece "asks for aid" within a week or two, then it will launch a series of severe reactions. In Germany, where there is enormous public opposition to helping Greece, there will reviews by the parliament and the courts, as we've been reporting.

Asking for aid could well be a big trap, according to FT. According to the Sunday agreement, Greece may not receive aid unless "market financing is insufficient" -- meaning that Greece is in default. Thus, just ASKING for aid is equivalent to a default.

It's clear that the current situation is unsustainable, and that a major confrontation must occur soon. Whether that's in a couple of weeks or farther out remains to be seen.

Fed chairman Ben Bernanke warns that economy is worse than reported

Also unsustainable is the current U.S. deficit, according to testimony by Fed Chairman Ben Bernanke before Congress on Wednesday. Here's an excerpt from his testimony:

"In addition to the near-term challenge of fostering improved economic performance and stronger labor markets, we as a nation face the difficult but essential task of achieving longer-term sustainability of the nation's fiscal position. The federal budget deficit is on track this year to be nearly as wide as the $1.4 trillion gap recorded in fiscal year 2009. ...

In particular, the Administration and the Congressional Budget Office (CBO) project that the deficit will recede somewhat over the next two years as the temporary stimulus measures wind down and as economic recovery leads to higher revenues. Thereafter, however, the annual deficit is expected to remain high through 2020, in the neighborhood of 4 to 5 percent of GDP. Deficits at that level would lead the ratio of federal debt held by the public to the GDP, already expected to be greater than 70 percent at the end of fiscal 2012, to rise considerably further.

This baseline projection assumes that most discretionary spending grows more slowly than nominal GDP, that no expiring tax cuts are extended, and that current provisions that provide most taxpayers relief from the alternative minimum tax are not further extended. Under an alternative scenario that drops those assumptions, the deficit at the end of 2020 would be 9 percent of GDP and the federal debt would balloon to more than 100 percent of GDP.

Although sizable deficits are unavoidable in the near term, maintaining the confidence of the public and financial markets requires that policymakers move decisively to set the federal budget on a trajectory toward sustainable fiscal balance. A credible plan for fiscal sustainability could yield substantial near-term benefits in terms of lower long-term interest rates and increased consumer and business confidence."

There are two points to take from this testimony:

Well, we've just added a huge, expensive new entitlement to the federal budget through the health care bill, and there's no chance whatsoever that policymakers will move decisively to do much of anything except spend more money and make things worse.

In order to change the "trajectory," politicians would have substantially increase taxes or cut entitlements. Neither of those is politically possible until a major financial crisis forces it.

From the point of view of Generational Dynamics, a major financial crisis is coming. The financial crisis that everyone seems to think is over has, in fact, barely begun.

Bernanke on hyperinflation

I want to mention something as an aside. Bernanke was asked something about whether the Fed would inflate the currency to solve the deficit problem. (I didn't hear the entire question, but it was something like that).

He responded by saying that nobody wants that, and by pointing out that even if they did, it wouldn't change anything. Most of the government expenses, including social security and medicare, are indexed to inflation, and so those expenses would right up, and the deficit would hardly be changed.

For those of you who are expecting to see inflation or hyperinflation, this is one more thing for you to think about.

People keep pointing to the hyperinflation of Germany's Weimar Republic in the early 1920s. But as I explained in "The bubble that broke the world," the Weimar inflation was triggered because reparations were paid, and the reparations were to be paid in German marks, not indexed to inflation. So the German government had a powerful political argument for inflating the currency.

There's almost no such political argument today. As Bernanke points out, even if we wanted to inflate the currency, nothing much would change, since most big things are indexed to inflation.

As I've said many times, you should expect a sharp deflationary crash, where the only asset of value will be cash. This could happen at any time -- next week, next month, next year.

Another 'smoking gun' for Citibank

The Financial Crisis Inquiry Commission (FCIC) has found that the Citibank sold CDOs that turned out to be "toxic assets," and guaranteed that investors in the CDOs would not lose money. Citi offered "liquidity puts" that allowed the investors to sell them back to the bank, according to Bloomberg. Citi ended up spending tens of billions of dollars buying them back.

In an interview, committee chairman Phil Angelides said: "One thing that is striking is the extent to which senior management either didn’t know or didn’t care to know about risks that ultimately helped bring the institution to its knees. If you’re having to offer buyers a put back to you, that should be a big red flag."

This is one more example of the "active/passive" paradigm that I've been developing. The active, nihilistic Gen-Xers implemented this "liquidity put" option to obtain more commissions, and their passive, incompetent Boomer managers pretended it wasn't going on - in order to obtain more commissions.

Additional Links

Concern is growing that Syria is supplying sophisticated missiles, capable of reaching Jerusalem, to the militant group Hizbollah. VOA

"Tea Party movement mirrors a deeply divided America." Der Spiegel.

In Thailand, red-shirted protestors are congregating in the tens of thousands at an elite shopping district, calling it the "final battleground" in their fight to oust the current government, led by Prime Minister Abhisit Vejjajiva. NY Times

For techies, here's an interesting article on parallel computing. In order for computers to continue to double in power every 18 months (Moore's Law), new technology advances depend on putting multiple CPUs into a single computer. Intel

Airport body scanners are ok with most U.S. travelers. Fierce Government IT

Researchers are reporting a significant drop worldwide in the number of women dying from pregnancy and childbirth. NY Times. There are always two sides to a story like this. It's wonderful that lives are being saved, but Generational Dynamics predicts that this will only mean that more deaths will occur in the next war.

Lt. Gen. Keith B. Alexander has been named to lead the Pentagon's new command devoted to cyber-war. NY Times

(Comments: For reader comments, questions and discussion, see the 15-Apr-10 News -- Six nations discuss sanctions targeting Iran thread of the Generational Dynamics forum. Comments may be posted anonymously.) (15-Apr-2010) Permanent Link
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14-Apr-10 News -- Alarm over Hungary's sharp right turn

Did Alcoa make money or lose money?

Please read the following article that I've also posted today: "Financial Crisis Inquiry hearings provide 'smoking gun' evidence of widespread criminal fraud."

German media express alarm over Hungary's sharp right turn

We recently reported that the far right has made significant gains in Hungary's parliamentary elections, capitalizing on anti-Semitism and on sentiment against the Roma (Gypsy) ethnic minority. The move was triggered by economic problems since the global financial crisis began.

A survey of German media by Der Spiegel finds a great deal of anger and alarm in editorial positions.

They note that "The Jobbik party got some 17 percent after campaigning on a deeply xenophobic platform. Commentators said Jobbik makes the Freedom Party of the late Jörg Haider, the Austrian populist, and Dutch right-winger Geert Wilders seem moderate."

The left-wing paper Die Tageszeitung says, "Twenty years after the end of the collectivist dictatorship, Hungary has turned into a grubby hive of nationalism in which far-right blood and soil ideologies are flourishing, pseudo-democrats are hailing the glorious history of the Magyars and militant racists are fighting against an allegedly 'overflowing' number of foreigners and ethnic minorities living in the country by parading around the streets with machetes and Molotov cocktails."

The conservative Die Welt says, "Hungary has been unable to escape the clutches of a difficult history that has been laced with defeat and has therefore fuelled national resentments. It's worrying that more than two-thirds of Hungarians have opted for parties that either toy with right-wing populism or are openly reactionary. The crisis, which is not just economic, has brought the ghosts of the past back onto the political stage."

The Germans have a deep sense of fear and shame over their 20th century history. They've stood apart from the rest of Europe on the Greece bailout because they remember the 1920s hyperinflation and the 1930s bank failures. And they're reacting strongly to Hungary's election because the fear a return of their own Nazi past.

From the point of view of Generational Dynamics, their fears are quite justified. As Europe goes deeper into a generational Crisis era, it is heading for more bank failures, and more political movements of the far left and far right.

Greece's bond sale continues high interest rate situation

Financial pundits and journalists were beaming of Monday's bond sale by Greece. A typical headline was this from WSJ: "Demand Is Strong for Greek Debt."

The headline refers to the sale of €1.56 billion ($2.12 billion) of 6- and 12-month Greek Treasury bills, which exceeded the expected amount. But if you read the story, you learn that the interest rate 4.55% and 4.85%, respectively. That's lower than the 7%+ that they have to pay for 10 year bonds, but it's very high for 6/12-month Treasury bills.

By comparison, the US and Germany sell 6/12-month bills at less than 1% interest.

The whole point of last weekend's show was to convince investors that Greece will not default, so that they'd be willing to lend money to Greece at low interest rates. That strategy appears to have failed.

Did Alcoa make money or lose money?

Around 4:30 pm ET on Monday, I noticed that WSJ online had a headline, later confirmed by a WSJ story, that said that Alcoa had announced its first quarter earnings, and had lost $201 million, or 20 cents per share. Shortly afterwards, I noticed that the CNBC story said that Alcoa had made a profit of 10 cents a share.

So, which is it?

Well, if you dig into the CNBC story, it seems that CNBC decided to report a figure "excluding one-time items." This kind of fallacious reporting has become typical for CNBC.

The Wall Street Journal started becoming more honest last June, when it began to distinguish between "operating earnings" and "as-reported earnings" in price/earnings computations. (See "Wall Street Journal sharply revises its fantasy price/earnings computations.")

Additional Links

Japan is requesting an explanation from China about why a large fleet of Chinese war ships are conducting maritime activities near Japanese waters. Yomiuri

Details are emerging that a weekend airstrike by Pakistan's military that supposedly killed dozens of Taliban-linked terrorists actually killed over 70 civilians. Washington Post

It seems that French President Nicolas Sarkozy, Italian Prime Minister Silvio Berlusconi, and ECB President Jean-Claude Trichet all ganged up on German Chancellor Angela Merkel last weekend, and forced her to accept the Greek bailout deal that they wanted. NRC Handelsblad

There are fears that the health care bill is going to exacerbate the doctor shortage. WSJ

I love this. The health care bill was supposed to provide all Americans with as good health insurance as Congress has. That may actually turn out to be true, though not in the way that was claimed. Due to a glitch in the way the law was written, people in Congress are no longer eligible for the federal employee health program, and must obtain coverage in their respective states. Now they'll have to try to amend the law to give themselves back their super-generous health coverage. NY Times

Millions of people visit Cuba each year to get free health care, but now Cuba is planning to require tourists to purchase health insurance when they get there. Toronto Star

China has always been one of Russia's largest customers for arms sales, but Chinese purchases have dropped off precipitously in recent years, because the Russians are only willing to sell Soviet-era weapons, and because China is developing its own weapons technology. The Diplomat

As Pakistan's economic troubles worsen, some Wall Street banks are closing brokerage operations in Karachi, worsening Pakistan's problems even further. WSJ

Islamist terror groups in Somalia have ordered Somali radio stations to stop playing music, and the station managers are complying, for fear of being killed. "We are using other sounds such as gunfire, the noise of the vehicles and birds to link up our programmes and news," says one radio station programmer. BBC

Lurid gossip about French President Nicolas Sarkozy and his supermodel wife Carla Bruni having outside affairs has brought in the police, and led to a farce that might be straight out of Molière. Telegraph

(Comments: For reader comments, questions and discussion, see the 14-Apr-10 News -- Alarm over Hungary's sharp right turn thread of the Generational Dynamics forum. Comments may be posted anonymously.) (14-Apr-2010) Permanent Link
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13-Apr-10 News -- Backlash over European deal on Greece

Ousted Kyrgyzstan president rallies supporters

Backlash begins on European non-bailout bailout of Greece

The financial pundits on TV that I heard on Monday were really bubbly about the EU's decision to provide a bailout of Greece, if asked, on Sunday. (See "12-Apr-10 News -- EU announces aid package for Greece.")

A typical headline was "Euro Rises Most Since September as Greece Wins Aid Package" from Bloomberg.

I've written many contemptuous words about the insanity of these journalists and politicians, but even by the typical very low standards that we see today, it's still hard to see how anybody can see this EU announcement makes any difference whatsoever.

German politicians are quoted by Bloomberg as saying that Chancellor Angela Merkel "buckled" by giving in to the French and other European politicians.

An analysis by Der Spiegel points out that if the plan were ever activated, then Germany "would have to transfer €8.4 billion into Athens' accounts." As a result, Merkel is receiving withering criticism from her political opponents and even some of her allies.

In response, a Merkel spokesman said the obvious -- that nothing has changed. The decision on whether to help Greece was "unchanged," because any activation would have to be approved. "The fact that the fire extinguisher is on the wall," said the spokesman, "says absolutely nothing about the likelihood of its being used."

Ambrose Evans-Pritchard, writing in the Telegraph, points out that the problems are not just political. As large as the bailout would have to be, it's still a short-term fix, and would still leave Greece vulnerable next year.

On expert points out, "It provides some clarity on interest rates and should help Greece through to the end of the year, yet even if Greece accepts the EU offer it will have to borrow a similar amount next year, and a similiar amount the year after, and the year after that it will need to repay this lending."

But before that could happen, we can imagine what would happen if Greece actually asked for aid. The first thing that would happen would be a challenge in the Verfassungsgericht, or the constitution court. According to Evans-Pritchard, the Verfassungsgericht is very likely to nullify the whole deal.

Another problem is that all the eurozone countries would have agree before any actual money could change hands. This would include, for example, Portugal, who would have to agree to bail out Greece, when they want a bailout themselves.

What everyone's hoping for is that this fantasy bailout will somehow convince investors that Greece's bonds are guaranteed not to default, and that therefore the investors can afford to purchase them at low interest rates. We should know more by the end of the week.

Ousted Kyrgyzstan President rallies supporters

Kyrgyzstan <font size=-2>(Source: CIA Fact Book)</font>
Kyrgyzstan (Source: CIA Fact Book)

Ousted Kyrgyzstan President Kurmanbek Bakiyev, who had fled the capital Bishkek after last week's violence, appeared in public for the first time on Monday at a rally of his supporters in Jalalabad, in the Fergana Valley.

Reuters quotes him as saying, "I am the president and no one can depose me. I appeal to all of you who gathered here, to those who travelled from the regions, please convey all of my words to locals and please tell them I am here in Kyrgyzstan, that I have not fled anywhere."

The government that replaced Bakiyev has threatened to have him arrested. Bakiyev responded to threats by saying, "Let them try to seize me. Let them try to kill me. I believe this will lead to such a great deal of bloodshed, which no one will be able to justify."

The Fergana Valley is a hotbed of Islamist extremism, and the site of previous wars between people from Uzbekistan and Kyrgyzstan. Web site readers with good memories may recall that last year when I wrote the article "Islamist Uzbeks lead terrorists in Pakistan and Afghanistan," I asked readers to make a mental note of the Fergana value, as it is one of the most strategically important regions in Central Asia and the world.

Bakiyev is sufficiently unpopular that there is some doubt that he can rally many supporters. But if he does, then there'll be further violence.

Additional Links

The Fergana Valley was in the news for a different reason. The Islamic Movement of Uzbekistan, which has its roots there, is supplying modern weaponry to the Taliban fighting against coalition forces in Afghanistan. Spiegel

As elections approach in the UK, the incumbent Labor Party is announcing plans to require that all new applicants for public sector jobs will be required to speak English. Times Online

"I was hacked by Beijing." NY Times

The new UN climate talks are "fracturing," meaning that the new talks aren't doing any better than the old ones did. Bloomberg

Pakistan and India are both increasing their production of nuclear weapons. NY Times

(Comments: For reader comments, questions and discussion, see the 13-Apr-10 News -- Backlash over European deal on Greece thread of the Generational Dynamics forum. Comments may be posted anonymously.) (13-Apr-2010) Permanent Link
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12-Apr-10 News -- EU announces aid package for Greece

What would happen if Nato and the U.S. withdrew from Afghanistan?

The European Union announces a $40 billion aid package for Greece

Everybody is hailing the agreement by European leaders to provide a financial rescue for Greece.

In an article entitled "Europe Unifies to Assist Greece With Line of Aid," the NY Times says that the Europeans are "offering the country up to $40 billion in aid to meet its giant debt obligations."

It's sounds like a great plan, too. The European Union will supply $40 billion in aid at 5% interest, and the International Monetary Fund (IMF) will supply an additional $20 billion, at an even lower interest rate.

That's great! The Germans, who would have to provide the greatest amount in a bailout, have agreed to a bailout of Greece! The Greek financial crisis is over! Now we can forget about it, and move onto something else! What a relief!!!!! Hooraaaay!!

Errrrrr, wait a second. According to the article, the funds would become available only if Athens asks for them. Well, that's OK.

Oh, but "If it does, the heads of government from the euro zone would have to sign off on the package."

Well, what does that mean?

Well, there's a little clarity in a Dow Jones Newswire report appearing on The report quotes a spokesman for Germany's Finance Ministry as saying the following:

"This decision today was no decision on aid for Greece. But it was only about technical preconditions for aid by further specifying the decision of the heads of state and governments. We expect, we hope that Greece is now in a situation where it can continue to refinance itself on the capital markets, as previously.

We hope Greece now has good chances to continue to refinance itself on the capital market on sensible credit conditions, or reasonably bearable conditions."

Furthermore, the spokesman explained what would have to happen before there was any actual aid given:

According to the spokesman, "There is a big step between what has happened today and what would happen if Greece would actually ask for this help."

Correct me if I'm wrong, Dear Reader, but despite the ebullient headlines, there's no aid package in place at all. As usual, all I can do is shake my head is near disbelief at the idiocy and insanity going on today.

If this spectacle convinces investors that the danger of a Greek default is over, then I'll eat my keyboard.

The NY Times headline reads, "Europe Unifies to Assist Greece With Line of Aid." Well, it turns out that all that's happened is the Europe has unified to issue a meaningless press release.

Greece's financial situation has been trending downward rapidly, as we've been reporting almost every day for the last couple of weeks. On Monday and Tuesday, there will be new bond offerings, as Greece tries to borrow enough money to meet its payments next month. We'll see what happens.

Peter Galbraith comments on a US partial withdrawal from Afghanistan.

Peter Galbraith is the son of John Kenneth Galbraith, whom I've quoted many times from his book, "The Great Crash - 1929."

Peter Galbraith has served both Republican and Democratic administrations as a foreign envoy. He used to be second in command of the U.S. mission in Afghanistan, but was fired for getting into a big argument with Afghan president Hamid Karzai over election fraud.

On Sunday, he appeared as a guest on CNN's Fareed Zakaria GPS news show, where he recommended that the US abandon the "surge," and cut back on the number of troops in Afghanistan. Zakaria asked him if he was giving up hope on creating a more stable Afghanistan. Here's his response, according to the transcript:

"Yes, as well as preserving the non - the - the stability in the non-Pashtun areas, which is at least half the country.

But we're in a war that we cannot win, and we also cannot lose in the sense that the Taliban cannot retake Kabul. They - they got there in the 1990s, when the whole world had turned away, and with - on - basically on Pakistani tanks. That isn't going to happen again. They can't take the Tajik, Hazara and other non-Pashtun areas.

So, even if we were to reduce our presence, I don't think the situation would look very different from what it is now. You would have a - a separate, basically autonomous Tajik and Hazara regions, and you would have an - a Pashtun region. As it is now, where the countryside's controlled by the Taliban and where, as now, they control large parts of the cities, including large parts of - of Kandahar.

You - you speak about giving up on the mission, but I - we don't - if the mission can't be accomplished, we don't need to debate whether the mission is important or not. Before we commit troops, 100,000 troops and hundreds of millions of dollars, we need to see how it is we're going to succeed.

Everybody says that for counterinsurgency strategy to work, we need a credible local partner, and I think nobody can persuade me, and I suspect most other analysts, that Karzai really is capable of being a - a credible local partner. That's the dilemma we face."

I've written many times that the "surge" strategy cannot possibly work in Afghanistan the way it worked successfully in Iraq. An important difference between the Iraq war and the Afghanistan war is the tribal area of Pakistan, on the border with Afghanistan. In Iraq, al-Qaeda linked suicide bombers are far from their base, but in Afghanistan, the Pashtuns flow back and forth through the tribal areas.

What Galbraith is saying makes a lot of sense to me. He's not recommending a withdrawal from Afghanistan, but he says that a cutback in forces would not change things much.

Additional Links

Russia is being blamed for the Kyrgyzstan uprising because it had been conducting a media campaign portraying president Kurmanbek Bakiyev as a repugnant dictator. Washington Post

The right and far right have made significant gains in Hungary's parliamentary elections. They capitalized on anti-Semitism, and on sentiment against the Roma (Gypsy) ethnic minority, as well as rising dissatisfaction over the economy since the global financial crisis began. BBC

Iran is accusing President Obama of violating the Nuclear Non-Proliferation Treaty by issuing its U.S. Nuclear Posture Review and appearing to threaten Iran and North Korea with nuclear war. Tehran Times

(Comments: For reader comments, questions and discussion, see the 12-Apr-10 News -- EU announces aid package for Greece thread of the Generational Dynamics forum. Comments may be posted anonymously.) (12-Apr-2010) Permanent Link
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11-Apr-10 News -- Plane crash kills Poland's president

Thailand's army shoots on crowd of young 'red shirt' demonstrators, killing 20.

I apologize for the delay in getting this posted.

Katyn massacre commemoration canceled on plane crash killing Polish president

The death of Poland’s president Lech Kaczynski in a plane crash on Saturday is full of irony because the crash occurred in Russia near Katyn, and Kaczynski was on his way to a 70th year commemoration of the Katyn forest massacre. In March of 1940, Josef Stalin signed the order to kill over 20,000 senior Polish officers who were being held as prisoners of war in Katyn forest and three other locations.

The plane traveled from Warsaw, and crashed in Smolensk, near the Katyn forest. <font size=-2>(Source: NY Times)</font>
The plane traveled from Warsaw, and crashed in Smolensk, near the Katyn forest. (Source: NY Times)

The Russians denied the 1940 massacre for many years, blaming it on the Nazis. Since the Poles knew that the Russians had done it, this was a sore point in Russian-Polish relations for many years, until Soviet Union General Secretary Mikhail Gorbachev apologized for the massacre in the 1980s.

Lech Kaczynski, born in 1949, grew up in that period of tension, with Poland as a Soviet satellite. Like any prototypical Boomer, he protested. He led anti-Russian movements throughout his life, causing him not to be very well liked in Moscow.

Still, this week's commemorations were historic by themselves, because Russian prime minister Vladimir Putin became the first Russian leader to attend a memorial for the massacre. However, notice that I said "commemorations" - plural. The first commemoration was on Wednesday, and Putin attended, but Kaczynski was not invited to participate in that ceremony, according to the NY Times. Instead, Poland's prime minister Donald Tuck was invited to that one, and a second ceremony was set up on Saturday, which Kaczynski was flying to when his plane crashed.

Thus, the question that everyone is asking today is how the plane crash will affect Polish-Russian relations. It could go either way, according to the NY Times. On the one hand, this was a moment when Russian-Polish relations were renewing, and the crash thwarted that.

On the other hand, the plane was filled with dozens of Poland's top political and military leaders, and so the crash wipes out a large portion of the country's leadership. The new government may get along better with the Russians than the old one.

20 people killed in Thailand as police shoot at demonstrators

The government of Thailand's prime minister Abhisit Vejjajiva lost patience on Saturday and ordered the Thai army to fire on "red shirt" protestors. Some 20 demonstrators were killed, hundreds were wounded. Thousands of Bangkok tourists were forced to flee, according to the Sydney Morning Herald.

From the point of view of Generational Dynamics, Thailand is now at a major crossroads, with basically two choices:

All the signs indicate that Thailand will take the first of these choices. However, it's worth pointing out that I thought the same thing about Iran when Awakening era violence first broke out last year after the June 12 elections. Instead, Iran has become increasingly violent towards its young demonstrators.

America's last generational Awakening period was the 1960s and 1970s, and there were plenty of riots, demonstrations, and "long, hot summers." Most Americans were undecided about what to make of the demonstrations. But the shock that was felt when four Ohio Kent State college students were shot and killed by national guardsmen in 1970 was one of the factors leading to the threat of impeachment for President Richard Nixon.

The goal of Thailand's red-shirted protestors is to get Abhisit to resign and call for new elections. My guess is that he'll now be forced to do exactly that. But if he tries to use military force to hold on to power after killing 80 young demonstrators, then Thailand is going to have serious trouble ahead.

Additional Links

The euro zone finance ministers will meet on Sunday to decide how to avoid committing to bailing out Greece while, at the same time, convincing investors they have every intention of bailing out Greece, if necessary. It hasn't worked before. Reuters

Microsoft is still strongly committed to China, even after Google's recent decision to cut back. Reuters

(Comments: For reader comments, questions and discussion, see the 11-Apr-10 News -- Plane crash kills Poland's president thread of the Generational Dynamics forum. Comments may be posted anonymously.) (11-Apr-2010) Permanent Link
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10-Apr-10 News -- Rumor of Greece bailout this weekend

Violence simmers down in Kyrgyzstan as US and Russia compete for influence

An EU-IMF Greek rescue is rumored for this weekend

Greece continued its downward spiral on Friday, when Fitch Ratings lower the nation's debt rating two notches to near junk status, to BBB- from BBB+. The WSJ quotes fitch as saying, "It is vital that the Greek authorities import credibility from external institutions, underpinned by a credible commitment of financial support." The phrase "import credibility" implies that Greece has no creidibility on its own.

Things have gotten so bad that European Union officials are actually going to have to put together a bailout this weekend -- or at least that's what economists at UBS AG are saying, according to Bloomberg.

Angela Merkel and the Germans have made it clear that they do NOT want to bail out Greece. Merkel has reiterated her position that she will only agree to lend money to Greece at "market rates" -- i.e., the 6-7% interest rates that we've been talking about for a few days, and which everybody agrees that Greece can't afford for long.

It'll be interesting to see what comes out of this over the weekend. One possible scenario is that the weekend will end in bitter recriminations. A second possibility is that the EU will come up with some kind of phony bailout, like the one they came up with two weeks ago that accomplished nothing. And a third possibility is that they'll come out with a real bailout package that will actually convince the financial community that they mean business about not letting Greece default.

In my opinion, the first two scenarios are equally likely, while the third is highly improbable.

A game theory perspective to the Greece financial situation

Mohamed El-Erian, CEO of Pimco, has posted an article in FT explaining, from a game theory perspective, why the Greek rescue plans are failing.

He calls the situation a "classic coordination failure in game theory," where any party that moves is worse off. That is, "it's in the interest of any single party to wait for other to move first. As a result, no meaningful progress is made, the problems fester, and the risks of a disorderly outcome increase."

Zugzwang: Whoever moves loses
Zugzwang: Whoever moves loses

This is a fairly common concept in the game of chess, especially in the end game, where it's called "zugzwang," literally meaning "the compulsion to move." In the position on the right, each King is protecting its own Pawn and attacking the opponent's Pawn. Whoever has to move will lose his Pawn and the game.

One side or the other has to lose because they're opponents. In the Greek situation, according to El-Erian, "the solution to Greece’s problems is undermined by the inability of the major players credibly to commit to the required high level of co-ordination and trust."

Thus, the Greeks can't cut their budget even more than they have, because they know that the EU will delay helping them in that case. And the EU doesn't want to just offer a bailout package, because then the Greeks will stop cutting their budget.

We might add that both the EU and Greece have political "allies" that are pushing them towards distrust and delay. Thus, the Germans are pushing very hard to prevent the EU from provding a bailout, and the labor unions are pushing very hard to prevent the Greeks from agreeing to any more budget cuts.

Thus, according to El-Erian,

"Against this background, we should expect an intensification of the European blame game in the weeks ahead. Greece will complain about the lack of meaningful support from its European neighbours. They, in turn, will point the finger right back, noting the urgent need for Greek austerity. And the IMF will be pulled in all directions, including by those hoping that the institution can engineer an immaculate recovery for Greece."

And so, the EU and Greece are in mutual zugzwang. "As a result, Greece is unable to provide sufficient assurances to its creditors, thereby further complicating an already tough situation. This accentuates the hesitancy of exceptional financiers, such as Germany, who resist having to again pay the bill after others have partied. And without exceptional financing, the Greek government finds it even more difficult to embark on an adjustment program that relies on only one instrument – that of fiscal austerity."

This is a very interesting way of looking at the situation - and not just the Greek financial situation.

It's similar to an article that I posted in 2006 exploring the concept that the world is in a "Nash Equlibrium," a game theory concept named after John Nash, the Nobel-winning mathematician portrayed in the movie "A Beautiful Mind." (See "A beautiful mind? The world is paralyzed into a 'Nash equilibrium.'")

In game theory, a Nash Equilibrium occurs when each player has to make the same move over and over, because the first player to make a different move loses something. This isn't exactly the same as zugzwang, but it has the same effect.

Kyrgyzstan's ousted president Kurmanbek Bakiyev fears he'll be lynched

After the riots early this week, where 76 people died and over 1,500 were injured, Kyrgyzstan's ousted president Kurmanbek Bakiyev has gone into hiding in Jalalabad on the Fergana Valley.

Kyrgyzstan <font size=-2>(Source: CIA Fact Book)</font>
Kyrgyzstan (Source: CIA Fact Book)

Bakiyev has told the BBC that he dare not return to Bishkek, the country's capital. "If I were to turn up in Bishkek, I would be killed. Or even worse, they would throw me into the crowd saying 'this is the man who is responsible for all the bloodshed', and then I would be lynched."

Much of Bishkek was looted or burned in the riots. The violence has now stopped, and it remains to be seen whether it will restart and spiral into a larger war.

According to the Asia Times, the Russians are taking advantage of the coup by negotiating with the new government to close the American air base in Manas, near Bishkek, so that only Russia will have an air base in the country.

Additional Links

Opposition parties in Georgia are threatening to repeat Kyrgyzstan's revolution in Georgia, to replace President Mikheil Saakashvili. Ria Novosti

30 million of Mexico's 84 million cell phones are prepaid, purchases from street vendors, and unregistered. Drug cartels use unregistered cell phones for extortion or to negotiate ransoms. This weekend, under a new law, all 30 million unregistered cell phones may be cut off as a crime-fighting measure. Reuters

Rather than hiring just plain-vanilla computer scientists, technology firms in Silicon Valley are looking for those with experience in statistics, data manipulation, mathematics and machine learning. WSJ

DARPA is building a robot that can travel through the forest and forage for food, allowing it to stay on duty indefinitely. The Energetically Autonomous Tactical Robot (EATR) will be able to grab fuel like sticks and branches, saw them up into bite-size pieces, and feed it to a biomass-powered generator that will burn the food and turn out electricity. Forbes

Iran has unveiled new "third-generation" centrifuges that can enrich uranium six times faster than Iran's previous capability. This could shorten the time it takes to build a nuclear bomb, though Iran insists that it's only for peaceful purposes. BBC

The Obama administration is denying climate aid to countries that opposed the Copenhagen climate accord. Bolivia and Ecuador will be targeted. Guardian

A math primer on sovereign debt. A country with debt exceeding 100% of its GDP can survive if the interest rates are low and if the country's economy is growing rapidly. Neither of those situations is true in Greece today. NY Times

The Massachusetts health insurance market is falling deeper and deeper into financial trouble. FireDogLake

China is on a "treadmill to hell" because of their growing property bubble, according to hedge fund manager James Chanos. "They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing." Bloomberg

It's been two weeks since a South Korean navy warship exploded and sank near North Korean waters, and there's still no official explanation what happened. It appears that a cover-up is going on, and it may well have been a North Korean torpedo, but saying so would start a new Korean War. Asia Times

(Comments: For reader comments, questions and discussion, see the 10-Apr-10 News -- Rumor of Greece bailout this weekend thread of the Generational Dynamics forum. Comments may be posted anonymously.) (10-Apr-2010) Permanent Link
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9-Apr-10 News -- Greece crisis worsens -- again

Kyrgyzstan's president goes into hiding, plans counter-coup

Greece's crisis worsens again, as bond yields surge to new highs

As we've been reporting the last few days, two of the signs that Greece is close to default are that, first, wealthy Greeks are moving a great deal of money out of Greek banks to foreign banks and, second, that the yield (interest rate) demanded by investors for Greek bonds is surging.

Bond yields surged again on Thursday -- by a substantial amount. Just yesterday, investors were demanding a 7.1% yield for Greece's 10-year bonds, compared to around 4% for U.S. and German bonds. That was up from 6% from last week.

On Thursday, that rate surged further to 7.58%, according to Financial Times, before falling to 7.35% after Jean-Claude Trichet made some comforting remarks (see below).

On Thursday, there was an even bigger blowout in yields on 2-year bonds, according to the WSJ. The yield on Greek 2-year bonds was 8.034%, compared to 0.917% for the German bonds.

Greek credit default swaps go parabolic

Another measure of investor anxiety is the price of credit default swaps (CDSs) for a particular country's debt. A high price for CDSs indicates that investors believe that a country is more likely to default on its debt.

The following graph from Markit via FT Alphaville shows the CDS prices for the five PIIGS countries:

CDS prices for PIIGS (Portugal, Ireland, Italy, Greece and Spain) countries <font face=Arial size=-2>(Source:</font>
CDS prices for PIIGS (Portugal, Ireland, Italy, Greece and Spain) countries (Source:

As you can see, the prices of Greek CDSs have been surging. The last spike reached 435 on Thursday, meaning that it costs 435,000 euros to insure 10 million euros of Greek debt on Thursday. As we reported yesterday, the figure yesterday was $400,000, up from 344,000 a week ago.

This situation cannot be described as anything but panic. It was beginning to affect the euro currency as well until, as Bloomberg reports. Jean-Claude Trichet, head of the European Central Bank (ECB), attempted to comfort the markets: "A default is not an issue for Greece. I will only repeat that what is important is the measures that are taken and implemented by the Greek government and the Greek parliament."

This may have soothed some people, but in recent weeks it's become clear that investors are going to demand more than words.

No Greek 'contagion'

Many people are also taking comfort from something else. If you look at the above graph, you can see that the CDS prices for the other four PIGGS countries have not spiked the way they have for Greece. This is causing many people of the "in denial" class to say that there's no "contagion" from Greece's problem to the other countries, and so even if Greece defaults, everyone else will be OK.

And I heard a financial pundit on TV on Thursday say much the same thing. "I'm shocked at the suggestion that the Greece crisis would have any effect on Wall Street," he said. "Greece is just a small European economy."

That's why I modified the above graph to add those three labels. As you can see:

What this indicates, at least to me, is that there's a chain reaction going on, and that a default by Greece is not only likely, but also would immediately cause other countries' CDS prices to spike in a similar manner.

Additional Links

Violence and looting are widespread in Bishkek, the capital of Kyrgyzstan, after yesterday's coup. However, president Kurmanbek Bakiyev has not acknowledged defeat, and is hiding out, undoubtedly planning a counter-coup. LA Times

Thailand's "Red shirt" protestors are planning for a massive protest on Friday, as the country's generational Awakening era political chaos continues. Reuters

(Comments: For reader comments, questions and discussion, see the 9-Apr-10 News -- Greece crisis worsens -- again thread of the Generational Dynamics forum. Comments may be posted anonymously.) (9-Apr-2010) Permanent Link
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8-Apr-10 News -- Greece is tottering on the brink

Chaos throughout Asia: Kyrgyzstan, India and Thailand are all in crisis

Greece is 'teetering on the brink of bankruptcy'

That's the conclusion of commentary appearing on Kathimerini, as Greece's situation becomes more desperate. "This country has become synonymous with the blatant manipulation of fiscal data and the inability of the political system as a whole to press ahead with the necessary reforms that every objective analyst of the Greek economy has suggested."

In fact, there are a number of signs that Greece is close to bankruptcy. In a column entitled, "Is Greece about to Default?" the WSJ points out that one of the major signs is the continuing rise in bond yields.

As we reported yesterday, the yield (interest rate) on Greece's 10 year bonds reached 7.1% on Tuesday (contrasted with less than 4% for US bonds or German bonds). On Wednesday, even Greece's short-term bonds were hit, with six month bonds yielding 6.4% (contrasted with less than 1% for short-term US or German bonds). That 6.4% is double what it was the morning before. The article points out that it's this spike in short-term rates that has signaled an imminent default in other cases in the past.

Another sign of potential imminent default is that wealthy Greeks are moving their funds out of Greek banks into foreign banks. Some 10 billion euros were transferred in this way in the first two months of this year. According to Ambrose Evans-Pritchard in the Telegraph, this pattern replicates the build-up to Argentina's default in 2002.

Both of these events are signs of panic. We've discussed the subject of panic many times on this web site, and how important the role of panic is in Generational Dynamics theory. During generational Crisis eras, public anxiety is always very high, and all it takes is some small event to trigger a panic that starts a major financial crisis or a major war.

What Greece needs now is a very forceful bailout from somebody -- anybody -- but there's no one there. The EU won't do anything -- Angela Merkel and the Germans have seen to that. Perhaps the International Monetary Fund (IMF) will still come through with something, but it may be too late for even that.

Kyrgyzstan government apparently collapses after violent street protests

Kyrgyzstan <font size=-2>(Source: CIA Fact Book)</font>
Kyrgyzstan (Source: CIA Fact Book)

Dozens have been killed as protestors in Kyrgyzstan's capital Bishkek attacked police and security forces with AK-47 assault rifles, and seized the Parliament and other government buildings. Reports indicate that Prime Minister Daniyar Usenov has signed a letter of resignation, according to the Telegraph, but that hasn't been independently confirmed. President Kurmanbek Bakiyev, is reported to have fled Bishkek.

Kyrgyzstan's last generational Crisis war was the Soviet occupation that occurred in conjunction with the Bolshevik Revolution of 1917. World War II was therefore an Awakening era war for Kyrgyzstan, and the country was not heavily involved. The same was true of Uzbekistan, as I wrote in more detail last year. (See "Islamist Uzbeks lead terrorists in Pakistan and Afghanistan.")

Thus, Kyrgyzstan is deep into a generational Crisis era, and there's a good possibility that the country is on the verge of a crisis war revolution. The Muslim population is poor, and the government perpetrates horrific human rights abuses against the people.

Kyrgyzstan is the epitome of corruption. The US has an important military air base in Manas in Kyrgyzstan, the only US base in Central Asia, and it's used to support operations in Afghanistan. There's also a Russian military base in Kyrgyzstan, and the two bases are a source of political tension between the US and Russia. The reason that both bases are in Kyrgyzstan is because both the US and Russia have provide a great deal of monetary aid to the corrupt government.

If the current situation spirals into a full-fledged revolution, it could spread to other populations in the region -- in Pakistan, in Uzbekistan, or even to the Uighur Muslims in northwest China.

India reacts to Tuesday's Maoist attack

India is still reeling from the violent Maoist ambush in Dantewada that killed 76 men in India's Central Reserve Police Force (CRPF) on Tuesday.

The 'Red Corridor' of regions  fully or partially controlled by the Maoists (Naxalites) <font size=-2>(Source: Asia Times)</font>
The 'Red Corridor' of regions fully or partially controlled by the Maoists (Naxalites) (Source: Asia Times)

The "jawans" in the CRPF are furious that the government permitted this to happen, as reported by the Times of India.

Government officials are still in a state of shock, wondering how to respond. The main question under discussion, according to the Hindustani Times, is whether to launch a full-scale military assault, using air power, against the Maoists. This would inevitably involve the Indian air force bombing Indian soil.

But an analysis in the Asia Times says that such a strategy is very unlikely to succeed. The Maoist insurgency has full or partial control over the "Red Corridor," vast areas of India's mineral-rich states, as shown on the above map. As the article points out, the US military has been unable to defeat the Taliban in Afghanistan after nine years, and the Maoists would be at least as difficult a target.

Like Kyrgyzstan, India is in a generational Crisis era, and so the possibility exists that this insurgency could spiral into a full-scale civil war.

Thailand declares state of emergency as red-shirted protestors attack Parliament building

Thailand's Prime Minister Abhisit Vejjajiva declared a state of emergency after Bangkok's "red shirt" protesters broke into the Parliament building, and lawmakers had to be airlifted to safety, according to the LA Times.

"The government has tried its best to enforce the law, but violations of the law have increased," he said. "Our main goal is to bring the country back to normal and make our law sacred once again."

The protestors are trying to force the government to resign. Many of them support former Prime Minister Thaksin Shinawatra, who is strongly favored by the poor in rural areas, but is hated by the city elites.

Although the situation in Thailand appears superficially to be almost the same as the situation in Kyrgyzstan, they're quite different because Thailand is in a generational Awakening era.

Thus, the situation in Thailand is much more similar to the situation in Iran. In both cases, there is no chance whatsoever that the riots will spiral into a full-scale war, but in both cases, the political chaos will continue for years. Abhisit may hope to "bring the country back to normal" again, just as Iran's president Mahmoud Ahmadinejad would like to bring Iran back to what he considers to be "normal." But that's not going to happen in either country for a long time.

Lifelike female robot may serve as receptionist

The one on the left is a robot.  The one on the right is a real live girl. <font size=-2>(Source: Fast Company)</font>
The one on the left is a robot. The one on the right is a real live girl. (Source: Fast Company)

In what Fast Company describes as "outright creepy," the Geminoid-F robot has been developed by the Intelligent Robotics lab at Osaka University in Japan.

She has realistic silicone skin, beautiful hair, and teeth that give her a nearly human smile. The robot will be available next month for about $110,000, and she'll be "fabulous" in roles like receptionist in a museum.

As computers become increasingly intelligent, approaching human intelligence, they'll be "packaged" in many innovative ways that look better than a box sitting on your desk.

Stay tuned for the next major news story, sure to be coming soon: Some guy wants the court to let him marry his Geminoid-F.

Additional Links

"Where do we get the free Obama care, and how do I sign up for that?" McClatchy

In Boston, commercial real estate rents are falling, while vacant office space and foreclosures are rising sharply. Boston Globe

A rapidly expanding real estate bubble is at work in greater Vancouver, Canada. The average sale price for a home surged to over $1 million in March. But don't worry. This time it's different. CTV

U.S. consumer credit fell more than anticipated in February, indicating that consumers are pulling back again, after going on a Christmas buying binge. Bloomberg

Cyber attacks on government IT sites by terrorists and foreign entities are growing and becoming more sophisticated, according to a survey by Clarus Research Group commissioned by Lumension. 42% of the respondents believe that the U.S. government's ability to handle these attacks is fair or poor. PR Web

(Comments: For reader comments, questions and discussion, see the 8-Apr-10 News -- Greece is tottering on the brink thread of the Generational Dynamics forum. Comments may be posted anonymously.) (8-Apr-2010) Permanent Link
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7-Apr-10 News -- Greece's financial crisis worsens

'Maoist' terrorists ambush security forces in India, risking civil war

Greece's financial crisis worsens, as bond prices crash

If you're Greece, then every day in every way, you are feeling worse and worse.

The prices of Greek 10-year bonds have fallen so much, that the yield (interest rate) reached 7.1%. (Recall that, in the case of bonds, as the price falls, the yield rises, and vice-versa.)

Just for comparison purposes, the yield of US 10-year bonds is just below 4%. German bonds have only a slightly higher yield. Thus, the yield on Greek bonds is astronomical by comparison.

In fact, the Greeks are hoping for a 4-4.5% interest rate, according to Financial Times. According to the article, some eurozone countries are willing to lend to Greece at that rate, but the Germans are balking, insisting that the Greeks should pay 6-6.5%.

This is really a mess, isn't it?

Recall that Greece's Prime Minister George Papandreou said that Greece could not survive if it had to pay 6% interest. Last month's phony bailout announcement by the EU, which said that they would bail Greece out, but only when Greece was already on the verge of defaulting, was supposed to reassure investors, so that they'd be willing to receive 4.5% or so for Greek bonds.

Not surprisingly, investors weren't convinced at all.

In fact, credit default swaps (CDSs) on Greek debt also surged upward, raising the cost of insuring €10 million of Greek bonds from €344,000 to €400,000, according to Times Online. This is a significant increase, and indicates the investors increasingly believe that Greece is going to default on its debt obligations.

Credit analysts are very concerned about the sudden and unexpected nature of Tuesday's sell-off, according to the article. Greece has to borrow up to €15 billion of new debt over the next two months, to make payments on its old debt (like using your MasterCard to pay Visa). There's a great deal of concern that the current path is unsustainable.

"Greece will default, but not this year"

I'd like to comment on one of the more bizarre opinion columns I've seen on the Greek crisis. It's by Wolfgang Münchau, an associate editor of the Financial Times, and one of Europe's most widely read financial journalist.

In his column of two days ago, when Greece was still paying only 6%, he began as follows:

"Greece will default, but not this year

I am willing to risk two predictions. The first is that Greece will not default this year. The second is that Greece will default. The Greek government has demonstrated that it can still borrow at a rate of about 6 per cent but if you do the maths on the public debt dynamics, as I did recently, it would be hard to arrive at any other scenario than an eventual default."

He goes on to explain how the Greeks are very clever at debt management, and so he doesn't expect them to default this year, but at 6% interest, Greece is mathematically certain to default in a year or so.

The first thing that's wrong with this is that Münchau cannot possibly have any idea what's going to happen in a year. Thanks to the "butterfly effect," a small change somewhere may have a big consequence for Greece, and the facts could change any day. In fact, they already have -- I'm sure Münchau would have to change his opinion today, now that Greece is paying 7%.

But there's a second thing wrong that's even more compelling. If Münchau knows that Greece is going to default next year, then investors know it too, and no investor would lend Greece money, so Greece will default this year. Why doesn't Münchau know this, if he's one of the most respected economic journalists in Europe?

Carrying this reasoning one step further, Münchau's provocative column was undoubtedly widely read by European investors. And maybe enough investors were turned off to investing in Greece by this column to force yields up to 7.1%.

In other words, maybe Münchau's column was the trigger that caused the sudden sell-off of Greek bonds on Tuesday. That's how the "butterfly effect" works.

Deadly Maoist attack leaves India vulnerable to civil war

Some are calling it "a war," according to the Times of India.

A terror group known as "Maoists" or "Naxalites" ambushed an 82 member team from the Central Reserve Police Force (CRPF), and killed 75. This was their deadliest attack ever, and it has ended all hope of peace talks between the Indian government and the Maoists.

The group was formed in 1967 in a split from the Communist Party of India (CPI). The CPI was aligned with Russian Communists, and they were increasingly moving away from violence and getting involved in India's political system. At that time, Russia and China were close to war with each other, and that split was reflected in the CPI itself. The breakaway group was aligned with China, and became known as Maoists. The initial peasant uprising that led to the Maoists occurred on May 27, 1967, in the town of Naxalbari, giving them the name "Naxalites." (

From the point of view of Generational Dynamics, this appears to be a generational split occurring during a generational Awakening era. I can't find any information on the ages of the two groups, but my expectation would be that the CPI represented the "old guard" of survivors of the Partition war, while the Maoists were their kids, born after the war.

The Maoists have partial or complete control of over 200 districts, along the "Red Corridor" occupying much of the western part of India. They pose a serious threat to the stability of India.

Additional Links

Federal and state legislators are cracking down on unpaid internships for young people, claiming that they violate minimum wage laws. NY Times

The Fed released the minutes of its March 16 meeting on Tuesday, and there was absolutely no concern about inflation. As we've been saying for years, America is in a deflationary spiral, and there will NOT be the hyperinflation that so many pundits are predicting. WSJ

Yemen's citizens are becoming angry that their country is being associated with al-Qaeda. Asia Times

If you think an electric toothbrush is high-tech, wait until you hear about the Internet-enabled version. CNN

(Comments: For reader comments, questions and discussion, see the 7-Apr-10 News -- Greece's financial crisis worsens thread of the Generational Dynamics forum. Comments may be posted anonymously.) (7-Apr-2010) Permanent Link
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6-Apr-10 News - US Consulate attacked in Peshawar, Pakistan

US delays report declaring that China is a 'currency manipulator'

Pakistan's Taliban in failed assault on the US consulate in Peshawar

Heavily armed terrorists in two vehicles failed to explode the US Consulate in Peshawar. Two Pakistani security guards who were guarding the Consulate were killed in the attack. In addition four of the attackers were killed, according to Dawn.

Tehreek-e-Taliban Pakistan (TTP), the Pakistan branch of the Taliban, claimed responsibility for the attacks. "We accept the attacks on the American consulate," said a spokesman. "This is revenge for drone attacks. We have already told you that we have 2,800 to 3,000 fedayeen (suicide bombers). We will carry out more such attacks. We will target any place where there are Americans."

This attack represents a change of strategy by TTP. Times of India points out that this was the TTP's first assault on a US mission since 2006, when the American consultate in Karachi was targeted.

TTP has been responsible for major recent terrorist attacks in Lahore and Islamabad on Pakistani targets. It's hard to see (at least for me) what TTP hopes to gain by attacking the US Consulate, except for public relations purposes. The goal of al-Qaeda-inspired terrorist groups like the Taliban is to establish a Sunni Muslim government, in this case in Pakistan, by provoking a civil war similar to the one that resulted in Iran's 1979 Great Islamic Revolution. Perhaps the TTP believe that they have something to gain by duplicating the 1979 attack on the US Embassy in Tehran, followed by the Iran hostage crisis.

Tea Party politics appears to be moving into the mainstream

One of the major themes of this web site for several years has been that a new political consensus will form, as it always does in generational Crisis eras. This new political consensus will take elements from both the Democrats and the Republicans, but will be different from both. As the financial and war crisis deepens, it may take a dangerous far left or far right turn, or somehow tunnel down the middle of the political spectrum. We can already see the growth of both far-left and far-right in some countries of Europe.

For the last year, it's been increasingly apparent that the Tea Party demonstrations are going to be the vehicle for the adoption of this new political consensus in America.

A new Gallup Poll appears to show that Tea Party supporters are increasingly more mainstream with regard to age, educational background, employment status, and race.

Politically, what really unites Tea Party supporters is their negative reaction to the recently passed health bill. Only 12% consider the health care bill to be a "good thing," while 87% say that it's a "bad thing."

However, the poll shows that a plurality, but not a majority, of Tea Party supporters are Republican. 49% are Republican, 43% are Independent, and 8% are Democrats.

Congress complains, China applauds, as US delays in issuing currency report

The Obama administration sought to relieve US-China tensions over the weekend by delaying a report on whether China is manipulating its remnbini (yuan) currency, in order to keep its manufactured goods cheaper. Economic adviser Larry Summers said that the delay would provide time to resolve issues by negotiation, according to CNN.

Two weeks ago, a letter from over 100 members of Congress, both Republicans and Democrats, urged the administration to name China as a currency manipulator. Once such a conclusion is reached, the administration would then be forced, either politically or by law, to impose punitive tariffs on Chinese imports. This would undoubtedly trigger retaliatory measures and a trade war, which the administration would like to avoid.

Delaying the currency report "brightens China relations," according to People's Daily.

Additional Links

Road sign near Treviso, Italy <font face=Arial size=-2>(Source: Telegraph)</font>
Road sign near Treviso, Italy (Source: Telegraph)

A road sign near Treviso, Italy, is confusing motorists. It shows a scantily-clad woman carrying a handbag, and warns people of prostitutes in the area. Telegraph

A major naval drama is in the offing, after Somali pirates unexpectedly hijacked a 300,000 ton Korean oil supertanker in the Indian Ocean. The ship, Samho Dream, was on its way to Louisiana. The Korean government has dispatched a warshhip to intercept the pirate ship, but it's not clear what will happen then. Korea's Arirang

Thailand's generational Awakening era protests continue, as many shopping malls in downtown Bangkok were closed for a third day. Tens of thousands of red-shirted anti-government clogged the streets. So far, the government has not used force against the protestors. NY Times

Russian prime minister Vladimir Putin met with Venezuela's president Hugo Chavez in Caracas, and discussed the sale of $5 billion of weapons to Venezuela. Telegraph

It appears that toads can predict earthquakes. Time

Germany security officials are becoming alarmed that a wave of young Germans, including entire Catholic familes, are converting to Islam and going to the Pakistan tribal areas for Islamist training. Der Spiegel

(Comments: For reader comments, questions and discussion, see the 6-Apr-10 News - US Consulate attacked in Peshawar, Pakistan thread of the Generational Dynamics forum. Comments may be posted anonymously.) (6-Apr-2010) Permanent Link
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More on the politics of the 'Generation Zero' movie

How the Republicans and Democrats worked together to create the financial crisis.

Professor David Kaiser, who writes for the History Unfolding blog, recently posted a lengthy criticism of the 'Generational Zero' documentary movie on the Fourth Turning forum.

Kaiser is a long-time online friend, and a strong supporter of the Democrat Party and President Barack Obama. His criticisms of the movie reflect that point of view. I, on the other hand, feel that the movie pretty much got everything right, and so I'd like to use this as an opportunity to develop some additional theoretical material on the the political aspects of generational theory, as it applies to the Democrats and Republicans today. (See "The politics of the 'Generation Zero' documentary movie" for previous discussion of this subject area.)

I'd like to focus particularly on the following of Kaiser's criticisms:

At the top, I agree that the movie gave the appearance of being too one-sided politically. When the movie described problems that were occurring in the 1990s, there was always video of President Clinton on the screen, but there was rarely any presidential video when it described events in the 2000s. I found myself occasionally asking myself, "Gee, I wonder who was president when all this was going on?"

First, the movie did not explain the role of the New Deal getting us out of the Depression because the New Deal had absolutely nothing to do with getting us out of the Depression. Neither did WW II, for that matter. The New Deal can be thought of as a stimulus program, and WW II can be thought of as an even larger stimulus program, but no stimulus program can affect the huge generational waves that caused the Depression. All that a stimulus program can do is provide temporary spot relief to selected people.

Credit default swaps

The main feature of today's worldwide financial system is hundreds of trillions of dollars (nominal value) of credit default swaps and other credit derivatives in portfolios of institutions around the world. This is approaching the staggering value of one quadrillion dollars. A trillion or two dollars of stimulus money is totally irrelevant when compared to that -- just as a teaspoon of water is irrelevant to the ocean.

The most dangerous of these are the $50-60 trillion of CDSs sitting in portfolios, without anyone even thinking about them, until they explode because some corporation or country defaults. And since these CDSs are highly correlated with one another, one explosion can set off an entire chain reaction of explosions, resulting in trillions or tens of trillions of dollars of destroyed assets. Once again, a trillion or two of stimulus money is irrelevant.

This is all consistent with what was developed in the 1980s-90s by Neil Howe and William Strauss, the founding fathers of generational theory. In their theory, the great events that they describe are not caused at all by politicians. I'm tempted to say that politics is irrelevant to generational theory but that isn't true. What IS true is there's only one direction of causation. Generational trends cause political events, not vice-versa.

I'll repeat that I think it's a fair complaint that the movie tends to blame the Democrats more than the Republicans. If politicians do not cause generational events, then no politicians should be blamed.

However, while I'll agree that the movie presents an unfair perception, there's actually a generational defense that the Democrats are, if not "to blame" for the financial crisis, at least the principle actors in the financial crisis.

One of the concepts that writer/director Steve Bannon left out of the movie (for lack of time) was the role of Generation-Xers in the financial crisis. The movie focuses exclusively on the Boomers, but in fact the financial crisis could not have been caused by the Boomers, because everyone agrees that the Boomers are too dumb to have devised those brilliant structured securities that turned into toxic assets, and are also too dumb to have figured out how to defraud investors by convincing them to buy them.

The question that I keep focusing on on this web site is this: How is it possible that so many crimes were committed by so many people in so many different companies, and everyone looked the other way? How is that even possible?

The standard excuse that we hear from politicians, journalists, bankers and regulators is that they didn't know that there would be a credit crisis that would bring everything down. In other words, their defense is, "I may be an expert, but I'm way too stupid to have known I was doing anything wrong." This defense is absurd on its face, but as I've said many times, there's no way that they couldn't have known by 2006-2007 that the real estate bubble was collapsing. And yet, the rate of fraud only increased during this period, and the journalists kept gleefully reporting on it, and the regulators kept ignoring it. There's no way that these experts didn't know that fraud was going on, but they all had much to gain by ignoring the fraud, and even propelling it forward. And the same thing is still going on today, perpetrated by the same people.

So how is this even possible? It must be generational, because it would not have happened prior to the late 1990s, after the Silent generation had disappeared. As I've written many times, the only way that it could have happened is if Generation-Xers created the toxic assets and perpetrated the fraud, and if they received the full support of their Boomer managers who are totally incompetent as managers and leaders. I've referred to this frequently as the lethal combination of greedy, nihilistic Gen-Xers, managed and enabled by greedy, incompetent Boomers. Neither generation could have done it alone; they had to be working together. But the Gen-Xers were "active," while the Boomers were "passive."

'Passive' Republicans versus 'Active' Democrats

That was all stuff that I've written about before, but now I want to move on to something new: translating this into politics.

If you go back to the period following WW II, there was a highly risk-averse culture which, for lack of a better name, we'll refer to as the "Silent culture," named after the Silent generation that was in power at the time (along with the GI generation).

In the Awakening era of the 1960s, the "Boomer counterculture" came into existence, caused by the "generation gap" between the Boomers and their parents.

So now we can translate the split between Generation-X and the Boomers into a split between the Democrats and the Republicans. Basically, the Republicans have adopted the "Silent culture," while the Democrats have adopted the "Boomer counterculture."

Moving forward to the present time, this means that in perpetrating the crimes of the financial crisis, the Democrats were the "active" perpetrators, and the Republicans were the "passive" enablers. Both parties are equally greedy and equally guilty, but their roles were different. This explains why the Democrats, more than the Republicans, are featred in "Generational Zero."


But now let's carry this one step further, into regulation.

The biggest criticism that the Democrats have of the Republicans is that their "free market" philosophy caused the entire regulatory structure to be weakened, starting with the Reagan administration in the 1980s.

Kaiser particularly points to the repeal of the Glass-Steagall law in 1999 as causing the financial crisis. But that can't be the cause, since the tech bubble and the worldwide real estate bubble were already in full swing at that time, and Fannie and Freddie were already deep into fraudulent securities and obscene bonuses by 1999. Still, the repeal of this major 1930s era law is part of the fabric of deregulation that was going on, starting in the 1980s.

If I were to pick laws that "caused" the financial crisis, I would pick the fair housing and fair lending laws, championed by Democrats, that put poor people, black people, women and children into homes that they couldn't afford. The Democrats wouldn't hesitate to take full credit for those laws, but now that those laws have fucked over those same poor people, black people, women and children, it's only fair that they get the blame. But of course, the Republicans were just as guilty, since they shared in the benefits.

This brings us back to the differing roles played by Republicans and Democrats. The fair housing and fair credit laws were championed by Democrats, but it was Republicans that favored the deregulation that made abuse of the fair housing and credit laws possible. This fits exactly into the "active/passive" template that I'm proposing.

That is, we have the following:

The above description isn't 100% correct, of course. Nothing like this ever is. But the general description is correct, I believe. The Democrats DID push extentions to the fair housing and fair lending laws that were so abused during the 2000s decade, and the Republicans DID push the deregulatory atmosphere that made the abuse possible.

The 'Solution'

Kaiser's final criticism of "Generation Zero" was that it didn't present any solution. That's true, but the problem is that there isn't any solution. This is the whole generational aspect of what's going on today. You have hundreds of millions of people (billions worldwide) who are committed to the path we're on, and the momentum cannot be stopped. The world's financial system is like a boat floating faster and faster toward the waterfall, and nothing can stop it. How long it will take to get there, and what will trigger the collapse, cannot be predicted, but collapse cannot be stopped.

Once again, I have to talk about this whole inflation/deflation thing that keeps coming up.

I read a lot these days from pundits who are predicting hyperinflation, or a hyperinflationary depression. This usually comes from Republicans who base this belief on the size of the stimulus program. As I keep saying, and have been saying for years, inflation is absolutely impossible.

With hundreds of trillions of dollars in credit derivatives, including $50-60 trillion in credit default swaps, about the implode, there there is no way that any stimulus program is going to make even a small dent.

What we're headed for isa very sharp, very deep deflationary crash, where the only asset of value will be cash. This crash could happen at any time -- next week, next month, next year. It's impossible to predict what will trigger it, but the situations in both Europe and China look very bad right now. It's hard to believe that China could be worse off than the U.S. right now, but they are.

"Generation Zero" hints at a hyperinflationary future at the ending, but as a whole, I believe that this movie hits everything right.

This is a very powerful movie, because it shows how devastating the financial crisis is. If you want to understand what's coming, so that you can prepare yourself and your family for it, then you and your kids should see this movie when it comes to movie theatres.

(Comments: For reader comments, questions and discussion, see the Generation Zero - The Inconceivable Truth thread of the Generational Dynamics forum.) (5-Apr-2010) Permanent Link
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4-Apr-10 News - Western and Orthodox Easters converge in Jerusalem

A North Korean torpedo may have sunk that South Korean warship.

Passover, Western Easter and Orthodox Easter all converge in Jerusalem

I've always found the Greek Orthodox Easter holy fire ceremony to be hugely impressive. The Church is always packed with people holding un-lit candles, and just before midnight the lights go out and the room is pitch black.

Holy Fire ceremony at the Church of the Holy Sepulcher in Jerusalem, at midnight today <font face=Arial size=-2>(Source: VOA)</font>
Holy Fire ceremony at the Church of the Holy Sepulcher in Jerusalem, at midnight today (Source: VOA)

A few moments later, it's midnight, and a light mysteriously appears at the altar. The priest holds up a brightly lit candle, in a sign of victory. He then uses the candle to light the candles of people standing nearby, and each of them, in turn, passes the flame on to other people. Soon, fire has reached everyone, and the church is brightly lit with hundreds of candles. As I said, it's very impressive.

I'm told that in Athens, the fire is passed from person to person throughout the city, until the entire city is lit with candlelight.

The picture above is of last night's ceremony in the Church of the Holy Sepulcher in Jerusalem, believed to be the site of the crucifixion of Jesus Christ. Worshippers came from many countries where Orthodox Christianity is practiced, including Serbia, Russia, Armenia and Greece, according to VOA.

Usually, the Western (Catholic/Protestant) Easter and the Orthodox Easter are on different days, but this year, the days coincide, along with Passover.

The result is that Israeli policement are on high alert in Jerusalem. Travel to and from the West Bank has been severely restricted, so that Palestinian Christians are usually unable to celebrate Easter in Jerusalem, according to Haaretz.

Palestinian Prime Minister Salam Fayyad said on Saturday that Palestinian Christians will celebrate the Holy Fire ceremony in Jerusalem next year, according to Ynet. He said, "Next year, Inshallah (God willing), we shall celebrate in the Church of the Holy Sepulchre in east Jerusalem, the capital of the Palestinian state. Our people, joined by all humanity, will celebrate the creation of the Palestinian independent state on all 1967 borders, a state whose capital shall be Jerusalem. We want this state to be based on the principles of humanity and justice represented in this holiday; our people strive to free themselves from the burden of occupation through popular resistance and setting positive facts on the ground."

It's impossible to predict with certainty what Jerusalem will be like in Easter of 2011, but I think that we CAN predict with certainty that Jersusalem will not be the capital of a Palestinian state.

One thing I've learned in studying history is that the importance of Jerusalem cannot be underestimated. For centuries, Jerusalem has played a major part in almost every major international war. This really struck me when I read that one of the motivations for the Russians to fight the Turks in the Crimean War was to protect Jerusalem, and Moscow was the protector of Jerusalem. Jerusalem has been the focal point of wars by Catholics, Greeks, Turks, Russians, Muslims and Jews for over 2,000 years. And now we may be close to seeing it happen again.

From the point of view of Generational Dynamics, nothing has changed since what I first wrote in 2003, when President Bush launched his major peace plan. (See "Mideast Roadmap - Will it bring peace?") Generational Dynamics predicts that there will be a major new Mideast war re-fighting the 1948-49 war between Jews and Arabs that followed the partitioning of Palestine, and the creation of the state of Israel. There will be no peace agreement.

Additional Links

Bangkok Thailand - tens of thousands of red-shirted anti-government demonstrators <font face=Arial size=-2>(Source: VOA)</font>
Bangkok Thailand - tens of thousands of red-shirted anti-government demonstrators (Source: VOA)

Thailand's generational Awakening era riots and demonstrations are getting more serious. Tens of thousands of red-shirted anti-government protestors blocked key intersections and shopping malls in Bangkok on Saturday, prompting the Abhisit government to threaten jail. VOA

"My black widows will have more blood." The story of how Chechen terrorist Doku Umarov came to be targeting Russian civilians, taking revenge against Russian security forces. Times Online.

The cause of the explosion that sank a South Korean warship near North Korean waters has not yet been determined, but South Korea's defense minister now says that a North Korean torpedo was "likely." If this turns out to be true, tensions in the region will skyrocket, as will the chances of war. BBC

(Comments: For reader comments, questions and discussion, see the 4-Apr-10 News - Western and Orthodox Easters converge in Jerusalem thread of the Generational Dynamics forum. Comments may be posted anonymously.) (4-Apr-2010) Permanent Link
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3-Apr-10 News - Russia's President Medvedev urges 'crueler' methods against terrorists

Will Russia join the West's war on terror?

Russian President Medvedev urges 'crueler' methods against terrorists

Female suicide bomber Dzhennet Abdurakhmanova and her husband, terrorist Umalat Magomedov. <font face=Arial size=-2>(Source: Moscow Times)</font>
Female suicide bomber Dzhennet Abdurakhmanova and her husband, terrorist Umalat Magomedov. (Source: Moscow Times)

This photo at the right is apparently of one of the two female suicide bombers whose explosions killed dozens of people in Moscow earlier this week. According to Moscow Times, Dzhennet Abdurakhmanova was a 17 year old girl, and was the widow of Islamist terrorist Umalat Magomedov, who was killed in October by Russian security forces in Chechnya.

She thus fits the profile of the "black widows" who commit terrorist acts against Russian civilians as revenge for the deaths of their husbands.

The bombings have caused enormous anxiety and anger among citizens of Moscow, who fear that they're in store for a series of such bombings.

President Dmitry Medvedev made a surprise visit to Makhachkala, a city in the Caucasus province of Dagestan.

Map: Bombings in Dagestan <font face=Arial size=-2>(Source: CS Monitor)</font>
Map: Bombings in Dagestan (Source: CS Monitor)

In Makhachkala, Medvedev told police and security forces to use tougher, "more cruel" measures to fight the "scum" responsible for terrorist attacks, according to Moscow Times. According to the article, Medvedev is using somber dress and rough language to imitate the style of Prime Minister Vladimir Putin. Medvedev and Putin may be rivals for the office of President in 2012.

It's hard to imagine how much more "cruel" the Russian security forces can be. Their brutality over the last 15 years has caused a great deal of anti-Russian hatred among the Muslims in Russia's Caucasus provinces.

But this is what happens during a generational Crisis era. It's fascinating to watch the level of anger and confrontation growing on both sides, until finally something triggers a full-scale crisis war, re-fighting the bloody civil war of the 1920s.

We've been making similar remarks about the Israelis and the Gaza Palestinians in the last couple of weeks. It's the same process, and will have the same result. I've flip-flopped over the years as to whether the most dangerous region in the world is the Caucasus, the Mideast or Pakistan, but right now, the Caucasus appears to be at the top.

Al-Qaeda terrorism in Russia

An analysis appearing in Russia Today points out that the terrorist attacks in Moscow and Dagestan bear some of the marks of al-Qaeda.

That is, there's little doubt that the terrorist acts were organized by Chechen terrorist leader Doku Umarow, who recently warned the Russian people that "the war is coming to your streets and you will feel it on your own lives and on your own skins."

However, perpetrating terrorist attacks requires more than ideology; it requires logistics, coordination and training. And commentators are saying that the training could have taken place in the tribal areas between Pakistan and Afghanistan, and that the planning could have been done in coordination with al-Qaeda.

As we've discussed a number of times in the past, al-Qaeda has turned into a kind of "virtual terrorist group," a brand name for loosely linked local Sunni Muslim terrorist groups in countries from the Pacific, through Asia and the Mideast to Africa, and north through central Asia to Russia and the Caucasus. The objective of Osama bin Laden and al-Qaeda leaders is to replicate the success of the 1979 Islamic Revolution of Iran to create a Sunni Muslim state in some country. They've tried in Iraq, Somalia, Yemen, Pakistan, Uzbekistan, and other countries, and they've failed so far, but they will not stop until they succeed.

According to Debka's weekly subscriber-only newsletter (forwarded to me by a subscriber), al-Qaeda is well entrenched in Russia's Caucasus provinces, and has been diverting fighters from other countries to that region. A grim picture has emerged: In March alone, at least 41 Russian security personnel and some 32 armed Islamic fighters were killed, with 98 wounded on both sides. The Islamist insurgents carried out 14 shooting attacks and 15 bombing or roadside explosives blasts; detonated at least 4 booby-trapped cars; used anti-tank mines in 5 attacks; and pinpointed Russian security officers in 9 targeted attacks. In all, 57 counter-terror or terrorist incidents took place in the 31 days of March, an average of 1.8 terror-related engagements per day.

Russian leaders are becoming increasingly alarmed by the mounting violence, and are ready to join the U.S. and the west in jointly fighting the war on terror, but they're unwilling to do so because the west refuses to recognize the seriousness of the terrorist threat to Russia. Instead, the Russians note, the west blames Moscow for heavy-handed suppression of ethnic groups in the Caucasus.

I have to agree with the Russian view, but I have a slightly different perspective.

In 2005, ABC News aired an interview with Shamil Basayev, the Islamist mastermind of the horrendous Beslan school terrorist attack that killed hundreds of people, including many young children. (See "Russia infuriated over ABC 'Nightline' interview of Shamil Basayev.")

It was almost beyond belief to me that ABC could give the mass murderer Basayev a platform of 15 minutes of air time to justify his acts. This must be the single most tasteless interview that I've ever seen.

But it makes the point that we're currently discussing. The Russians are infuriated that we expect them to cooperate with us in our war against terror, but then we sermonize and blame Moscow for the same kinds of terrorist acts directed against them.

Additional Links

Ten tax tips for the unemployed. NY Times

Over 25% of all Canadians are literally losing sleep each night, worrying about how they're going to pay off their debts, according to a survey by the Royal Bank of Canada.

(Comments: For reader comments, questions and discussion, see the 3-Apr-10 News - Medvedev urges 'crueler' methods v terrorists thread of the Generational Dynamics forum. Comments may be posted anonymously.) (3-Apr-2010) Permanent Link
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2-Apr-10 News - Ireland's banks in crisis

Israel carries out new military air strikes against Gaza.

'Worst fears have been surpassed' on Ireland's banks

An Ireland agency has found 80 billion euros of "toxic assets" in Ireland's banks, about half the size of the economy. The National Asset Management Agency (known colloquially as Ireland's new "bad bank") said on Wednesday that it will purchase these assets from the banks, at an average discount of 47%, according to Bloomberg. This will cleanse the banks of the toxic assets, allowing them one day to conduct normal business again -- or at least that's the hope.

The problem is that this represents a loss of 42 billion euros, and is much higher than expected. Analysts had estimated that the average discount would be only 35%, not 47%.

The 42 billion euro loss is "truly shocking," according to Ireland's Finance Minister Brian Lenihan. "Our worst fears have been surpassed," he said. "Irish banking made appalling lending decisions that will cost the taxpayer dearly for years to come."

The banks will have to make up the loss by selling stock or borrowing, possibly with government help.

This comes at the same time that Greece is still struggling to borrow over 10 billion euros by the end of May to avoid default.

It's now clear that the EU "bailout" or "backstop" plan for Greece announced last week is a total failure. The whole idea was that an EU "guarantee" would encourage investors to purchase Greek bonds as low interest rates. Instead, interest rates for Greece are higher than ever, and Greece's Prime Minister George Papandreou has already said that the country will not survive at these interest rates.

Thus, the "truly shocking" news from Ireland could not have come at a worse time, as the two countries will be competing with each other for investors' funds.

Israelis conduct air strikes against Hamas in Gaza

The tensions between Israelis and Gaza Palestinians continued to escalate on Friday as the Israeli Defense Forces (IDF) conducted 13 air strikes on targets in the Gaza Strip. The IDF told the BBC that the operation was targeting four weapons factories.

The strikes are the worst since the end of the Gaza war that ended early in 2009.

Since the death of Yasser Arafat, there have been three wars in the Mideast: Israelis vs Hizbollah in Lebanon in 2006, Palestinian Fatah vs Hamas in Gaza in 2008, and Israelis vs Hamas in Gaza in 2009. It's possible that a new war is approaching.

The latest round of tension began three weeks ago when Mideast peace talks between Israelis and West Bank Palestinians collapsed over an announcement that Israel would build 1,600 additional settlements in East Jerusalem.

Since then, there have been a chain reaction of increasingly confrontation events. Israel's Prime Minister Benjamin Netanyahu came to Washington to meet with President Obama, but left in humiliation as the President expressed dissatisfaction over the settlement announcement. Israelis and Hamas clashed in gun battles, in the first escalation since the Gaza war, after a Hamas ambush that killed two IDF soldiers. And last weekend, the Arab League condemned Israel and discussed preparing for the possibility that the peace process will end in total failure.

Friday's air strikes on Gaza take the chain reaction through another step, and another escalation.

From the point of view of Generational Dynamics, nothing has changed since what I first wrote in 2003, when President Bush launched his major peace plan. (See "Mideast Roadmap - Will it bring peace?") Generational Dynamics predicts that there will be a major new Mideast war re-fighting the 1948-49 war between Jews and Arabs that followed the partitioning of Palestine, and the creation of the state of Israel. There will be no peace agreement.

Additional Links

A new "Kosher" bus line is running in Tel Aviv. It separates men and women, according to Orthodox Jewish beliefs: The men sit in front of the bus, and women sit in the back. Ynet This is part of a worldwide trend, typical of a generational Crisis era, for revival of conservative religious beliefs of all kinds.

South Korea wants to have a Samsung robot in every home by 2020. HP Plus

Water, water everywhere, but not a drop to drink. That's becoming less true, as new technology is making it possible to desalinate ocean water fairly cheaply, making it drinkable. Guardian.

(Comments: For reader comments, questions and discussion, see the 2-Apr-10 News - Ireland's banks in crisis thread of the Generational Dynamics forum. Comments may be posted anonymously.) (2-Apr-2010) Permanent Link
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1-Apr-10 News - New suicide bombings in Russia's Caucasus region

Epidemic of financial and mortgage fraud is continuing as before.

Congress calls CEOs on the carpet after health care writedowns are announced

Boeing company announced on Wednesday that it will record a $150 million charge against profits, because President Obama's health care bill has removed a tax benefit to corporations that give prescription drug coverage to retirees. Bloomberg says that the charge will be reflected in first quarter earnings.

Earlier this week, AT&T announced a $1 billion writedown for the same reason. A number of other companies will make similar announcements. Some companies will undoubtedly solve the problem by ending their prescription drug coverage for retirees.

Representative Henry Waxman has sent letters to the CEOs of AT&T and other companies formally demanding that they produce documentation by April 9 defending the writedowns.

As I understand the law, listening to this issue being discussed on television, these corporations are required by law and by SEC regulation to declare these adjustments, so that investors will be fully informed. Obviously if a new law removes a tax benefit, then a tax charge is required. Thus, Waxman's letters are sheer political intimidation.

I get criticized all the time by readers for getting angry, but I'm sorry, this stuff absolutely infuriates me.

It's the likes of Waxman that pushed through the "fair housing" and "fair lending" laws that put people into homes that they couldn't afford. Waxman and his peers (especially Barney Frank) couldn't stop bragging about how they got these laws passed, and how they helped the poor, the blacks, the women and the children. Anybody who said that putting people into homes they couldn't afford was very bad policy was charged with being a racist, sexist cretin.

Now that those people are all losing their homes through surging foreclosures, it turns out that it's really Waxman and Frank who f--ked over those same poor people, black people, women and children, by leaving them homeless. That makes Waxman and Frank the racist, sexist cretins.

So now Waxman is turning his blaster on companies that are required by law to take writedowns for losing tax benefits in the health care bill. I'm sorry to be so furious, but how is it possible that this nation is being run by politicians who are so incredibly stupid?

Why is no one jailed for 'mortgage fraud epidemic'?

If you want to understand the sheer destructiveness of people like Waxman, it's well to take a look at an article posted on the CNN web site in 2004:

"FBI warns of mortgage fraud 'epidemic' Seeks to head off 'next S&L crisis' Friday, September 17, 2004 Posted: 5:44 PM EDT (2144 GMT)

WASHINGTON (CNN) -- Rampant fraud in the mortgage industry has increased so sharply that the FBI warned Friday of an "epidemic" of financial crimes which, if not curtailed, could become "the next S&L crisis."

Assistant FBI Director Chris Swecker said the booming mortgage market, fueled by low interest rates and soaring home values, has attracted unscrupulous professionals and criminal groups whose fraudulent activities could cause multibillion-dollar losses to financial institutions.

"It has the potential to be an epidemic," said Swecker, who heads the Criminal Division at FBI headquarters in Washington. "We think we can prevent a problem that could have as much impact as the S&L crisis," he said. ...

The FBI has dispatched undercover teams across the country in an urgent investigation into dealings by suspect mortgage brokers, appraisers, short-term investors, and loan officers, Swecker, flanked by FBI executives and Justice Department prosecutors, revealed. ...

States identified as the top 10 "hot spots" for mortgage fraud are Georgia, South Carolina, Florida, Michigan, Illinois, Missouri, California, Nevada, Utah and Colorado."

Excerpts from the CNN article were posted by guest blogger Edward Harrison on Yves Smith's Naked Capitalism web site.

The question that Harrison asks is: "Where are the investigations, perp walks, convictions? So what happened to all that fraud?"

And that's a very good question. The standard excuse that we hear from politicians, journalists and bankers is that they didn't know that there would be a credit crisis that would bring everything down. In other words, their defense is, "I may be an expert, but I'm way too stupid to have known I was doing anything wrong."

But the FBI did know, and they talked about it. So why aren't these people in jail by now?

This is the same kind of thing we've seen in so many stories I've posted on this web site. There was a culture of complicity throughout Washington, among the bankers, the politicians, the journalists, and the regulators, all of whom had something to gain by allowing the repeated fraud to continue.

Henry Waxman today is calling on the carpet companies that are doing what's required by law in informing investors of increases taxes resulting from the health care bill. Waxman would presumably be happier if these companies broke the law, since their breaking the law would serve his current political purposes. And then later he could express outrage that they broke the law, so he'd get a double win.

I can't prove it, but I believe that investigations will show that congressmen like Henry Waxman and Barney Frank would have called on the carpet any FBI investigator that interfered with illegal activities in the housing industry, and would have said that any such investigator was racist and sexist. That's why regulators could not prosecute crimes that they knew were being committed; because congressmen like Waxman and Frank, who must also have been aware that crimes were being committed, did not want the crimes prosecuted for political reasons.

I know that some of you out there will object to the above narrative. But what I keep grasping for is this: How is it possible that so many crimes were committed by so many people in so many different companies, and everyone looked the other way? How is that even possible? It must be generational, because it would not have happened prior to the 2000s decade. I'm proposing the "Waxman-Frank" explanation. If you have a better explanation, then let me know. But one thing is clear: Once the Silent generation was gone, then inhibitions and ethics went out the window, and it was OK to screw anyone you wanted to make a buck.

And while we're at it, the Naked Capitalism blog entry quotes an article from Nuwire investor:

"Epidemic Levels Of Mortgage Fraud Leading To Development Of Local Bubbles

Published on: Thursday, February 11, 2010

Government efforts to stabilize the financial system have kept interest rates low, and bought up more than $1.4-trillion in mostly failed mortgage-backed securities. But widespread fraud and other government efforts may already be driving the development of another housing bubble.

The FBI says mortgage fraud is still at epidemic levels, which may be fueling the development of local bubbles. Government backed low interest rate mortgages offered by the Federal Housing Administration (FHA) are showing signs of wide abuse by home buyers. The Internal Revenue Service is investigating an estimated 100,000 to 350,000 tax payers who may have cheated taking the first time home buyers tax credit. ...

"Mortgage fraud has been a crime of opportunity," said Merle Sharick of the Mortgage Asset Research Institute (MARI). "Now it's become a crime of necessity." MARI developed the Mortgage Industry Data Exchange as a weapon to defend against mortgage fraud.

Low downpayment FHA loans aren’t the only mortgages that are being tapped for fraud. Veteran Administration (VA) and the U.S. Department of Agriculture’s rural home loan program are also being eyed by investigators as mortgages that have been used by borrowers to fraudulently obtain financing.

Federal investigators are looking into a series of schemes that victimize home buyers and businesses, including low income families and real estate investors, who are being saddled with over-inflated mortgages in growing numbers.

The IRS says that that some of the most common types of fraud include property flipping, double sets of closing statements and fraudulent qualifications."

Notice the similarity between the 2004 article and the 2010 article. The same people are committing the same crimes today. And that includes the bankers, who are still charging 30% interest rates, and using the money to pay themselves million dollar bonuses. Nothing has changed in six years, and it won't be long before a new financial crisis begins.

New suicide bombings in Russia's Caucasus region

Double suicide bombings in Kizlyar, a city in the the Caucasus province of Dagestan, killed 12 people and wounded 23, mostly members of Russia's security forces. This follows by two days the Moscow subway explosions by suicide bombers.

Map: Bombings in Dagestan <font face=Arial size=-2>(Source: CS Monitor)</font>
Map: Bombings in Dagestan (Source: CS Monitor)

First, it's important to point out that while Moscow has been free of suicide bombings for many years, that isn't true of Dagestan. To the contrary, Dagestan has been plagued by dozens of suicide bombings almost every year. Thus, these new Dagestan bombings wouldn't be making worldwide news if it weren't for the Moscow bombings two days ago.

Historically, Dagestan is the site of centuries of genocidal inter-ethnic wars. This situation became much worse in the late 1990s, when the Russians were fighting the Islamists in Chechnya, causing many Chechens to flee to Dagestan for safety. Along with the Chechens came Islamist terrorist weapons, making the situation in Dagestan much worse than it had been, and it had been pretty bad.

In the course of the Chechen wars, the Russian security apparatus brutally crushed the opposition, through murder, kidnappings, and more extreme forms of violence. Vladimir Putin gets a lot of credit from many Russians for winning the Chechen wars, and for his hardline extremely nationalist statements about the Chechens, and for the victory that was declared last year. At the same time, many people in Dagestan and Chechnya are motivated by pure hatred toward the Russians in general, and Vladimir Putin in particular.

Thus, the new bombings provide a major political test for Putin, according to CS Monitor. Putin has been regarded as a hero for winning the Chechen war, but if terrorist activities are revived now, then Putin will be blamed. Given this political calculation, something to watch for is whether Putin will over-react, and institute brutal new measures in Dagestan and Chechnya to get revenge for the bombings.

Meanwhile, the Telegraph reports that Chechen terrorist leader Doku Umarow has posted an internet video claiming credit for the Moscow subway bombings.

Umarov says that he ordered the subway bombings, and that more bombings will occur in Moscow and other cities. He said, "Therefore the war is coming to your streets and you will feel it on your own lives and on your own skins. ... [You will no longer] serenely watch the war in the Caucasus unfolding on your TV screens, serenely watching and not reacting to the excesses and crimes of your gangs which are sent to the Caucasus under Putin’s leadership."

From the point of view of Generational Dynamics, Russia is headed for a major new civil war, re-fighting the war between Trotsky and Stalin in the 1920s, as well as the Caucasus wars that were fought at the same time. We may be watching several steps on the say to that war.

Additional Links

James Lovelock says that humans are too stupid to prevent climate change. Well, duh. If they're too stupid to prevent financial crises, and they're too stupid to prevent wars, then why should they be smart enough to prevent anything else? Guardian

"Saudi Arabia's conflicted Policy on the Afghanistan Crisis." A great overview of how Saudi Arabia and Iran are competing for influence in Afghanistan. Memri

China's huge property bubble is spreading from the big cities to the medium sized and smaller cities in rural areas. Caing

The plot to bomb the Moscow subways earlier this week may have been hatched by Islamist terror groups in Pakistan. Asia Times

A poll shows that thanks to the financial crisis, only half as many people this year as last plan to play pranks on their friends or relatives on April 1, April Fools Day. Moscow Times

(Comments: For reader comments, questions and discussion, see the 1-Apr-10 News - New suicide bombings in Russia's Caucasus region thread of the Generational Dynamics forum. Comments may be posted anonymously.) (1-Apr-2010) Permanent Link
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Web Log - March, 2012
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Web Log - January, 2012
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