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


Web Log - May, 2010


31-May-10 News -- Louisiana versus the United States

South Korea cancels planned propaganda campaign against the North

Louisiana versus the United States

The Gulf of Mexico oil spill is an enormous disaster, especially to the New Orleans region which is just recovering from Hurricane Katrina in 2005.

There's a lot of anger these days directed at the oil company BP. But there's also a lot of anger directed at President Obama and his administration. Many people affected by the oil spill blame the administration for being incompetent in not moving faster with the cleanup. Administration supporters point out that there's little that the administration could have done, given that all the expertise is within BP and other oil companies.

But on Sunday I learned, much to my surprise, that many in Louisiana see a different reason: That the American people are discriminating against Lousiana in particular.

This whole story started on Wednesday, when Democratic party strategist James Carville appeared on ABC News Good Morning America (GMA). Now, Carville and Stephanopolous are good friends, and both are strongly partisan Democrats, having served together in the Clinton administration. So when Carville appears with Stephanopolous, it's usually pretty bland.

But this time it was different. (Click on the link above to see a video of the entire exchange.)

Carville was absolutely furious at President Obama, accusing him of "political stupidity," and rattling off a list of things that Obama should have been doing. The following is a rough transcript of what Carville said -- rather, what Carville SCREAMED: "He could have come down here. He could have commandeered the whole thing. He could have sent the Woods Hole people. He could have sent research vessels. He could have demanded a plan. He could be commandeering tankers and make BP bring tankers in and clean this up, as was done in Saudi Arabia. They could be deploying people to the coast. He could be with the Corps of Engineers and the Coast Guard doing something about these regulations. The people are crying, they're begging for something down here, and it looks like he's just not involved. You've got to take control of this, put somebody in charge of this thing and get this thing moving! We're about to die down here!"

I didn't think that this rant was particularly important, since it seemed to be purely political, until I heard Carville on CNN on Sunday. Carville is furious at Obama and the nation because Obama and the nation are discriminating against Louisiana.

Here are some excerpts from the CNN transcript of the appearance moderator Candy Crowley and another Democratic operative, Donna Brazile:

"CARVILLE: I want the president to address the nation, to tell them how vital the Louisiana coast is to the country, and the amount of resources that have been extracted from us, and who he has in place and what's going to be our strategy, how much oil does he anticipate that is going to be dumped into the northern Gulf? What does he thinks the consequences are?

I want the best scientists, the best research, the best planners, the best everything. We need an utter long-term commitment.

People down here are fearful. We love our culture. You know, and maybe other people don't under that.

I've often invited on CNN for Mr. Axelrod to come down and see what it is and our emotional connection with each other, and with our marsh and with our land, and what it means to people here. And the fear that Louisianans fear very justifiably, that they've been abandoned in 1955.

The federal government has taken $165 billion of revenue out. The oil companies built canals that they never -- destroyed the wetlands. Our sediment has been dammed up on the northern Missouri River. Our levees were built shoddily. And our response to Katrina was not anything it should be.

Everybody in Louisiana knows for a fact if this would have happened off of Nantucket or Palm Beach, it would have been an entirely different reaction. And, you know, we've just had enough.

We're just not going to take it anymore. We're not going to be used. We're not going to be abused. We're going to stand on this one, and we're just going to stand in.

The people are very, very, very afraid, but they have a real sense that -- well, they know BP would abandon them, but a real sense that everybody would like to just get out of this mess. And we're going to keep in it, and we're not going to move, and we'll just resolve it."

I attempted to search the internet for the meaning of the reference to being abandoned in 1955, but couldn't find anything. If any reader knows what the 1955 reference is, please write to me.

But what's interesting is that Carville's accusations have nothing to do with politics, or with President Obama or with President Bush. Carville is saying that nation has abandoned Louisiana, except for its money.

Carville is certainly correct when he says that things would be different if this were Nantucket on Cape Cod. For years, it was impossible to do something as benign as erecting a few wind turbines off Cape Cod, because of opposition from Senator Ted Kennedy. Anything having to do with oil off Cape Cod would have been completely impossible.

So Carville's bitterness may well have a point. Crowley asked Donna Brazile what Carville meant:

"CROWLEY: James is in a semi-cease-fire mode. But he brings up something that I need you to explain to me, Donna, because I don't get it.

I don't understand why Louisiana thinks -- why James clearly thinks that had this happened in a different coast, up the East Coast, instead of New Orleans, that the response would have been different. We heard this in Katrina, too. And I just don't think that's true. I think I see government incompetence, not neglect of an area.

BRAZILE: No, Candy. I think the experience of many residents in the state of Louisiana was that people waited, that they waited for Louisianans to somehow or another walk off their roof into 10 feet of water into some dry land.

What we saw, the federal response and that of even the state response and the city as being not just incompetent, but that people didn't care. It is our feeling that the country does not understand."

Brazile was much more guarded in her use of words, but it was clear that she agreed completely with Carville.

Here are a couple more excerpts from Carville, later in the interview:

"You don't think they'll do that anywhere else. The country feels like it is entitled to abuse this state and forget about us, and we're sick of it. ...

And we're going to lose the mouth of the river. I'm almost certain of that because of this. And boy, the consequences of that are just breathtaking and staggering for the rest of the country.

And I'm sorry, Candy. But if this would have happened in Nantucket, their response would not have been, well, gee, we sent the deputy secretary of Interior up there. They would have moved the whole government.

I really believe that. And there's not a single person in Louisiana that doesn't."

This whole view is certainly a surprise to me, and it sounds very much like the kind of mutual blame we're seeing among the different states in Europe over the financial crisis.

As of Saturday, the latest attempt to block the flow of oil has failed, and it now appears that the flow won't be stopped until at least August, and possibly later. This means that the fury of Louisianans at the Obama administration and the rest of the country is going to increase substantially.

As I've said many times for several years, Generational Dynamics predicts that there will be a major political realignment occurring the in United States. Last year it became apparent that the "Tea Party movement" is going to play a signficant role in that realignment. As of today, my expectation is that the Gulf of Mexico oil spill, and the resentment and fury of the people of Louisiana, are also going to play a significant role.

South Korea cancels planned propaganda campaign against the North

As we've been reporting (see "25-May-10 News -- Belligerent words between North and South Korea"), South Korea announced a number of "punitive measures," short of military action, to hold North Korea accountable for the torpedo sinking of the South's warship Cheonan on March 26, killing 46.

One of those measures was a program called "The Sound of Freedom," where South Korean lougspeakers on the border blast propaganda messages into the North.

Now South Korea has abandoned this plan, according to South Korea's JoongAng news service.

The reason given is that North Korea has threatened to shoot at the loudspeakers to destroy them. South Korea would then shoot back, and this could spiral into full scale war.

Actually, it appears that it's more complicated than that. North Korea has once again succeeded in using implied threats and intimidation to force South Korea to back down, according to Asia Times.

There is an industrial complex in Kaesong, just across the border to North Korea. This was a joint project by the two Koreas to develop closer relations. The businesses are owned by South Koreans, and there are about 1,000 South Korean employees working there, in addition to 40,000 North Korean employees.

North Korea has threatened to cut off South Korean access to the complex, and may hold the South Korean employees as hostages, if the South begins its propaganda program.

And so it appears that North Korea has forced the South to abandon even this mild "punitive measure."

As a separate matter, the article also mentions that June is the height of the crabbing season in the Yellow Sea, and the North is likely, once again, to militarily challenge the South's defense of the maritime line separating the countries.

An article in the NY Times lists five ways that the situation could lead to a new Korean war:

Every country is number one at something

Every country in the world is the best at something, according to the London Times. Here's a map that shows what that "something" is for each country:

Every country is number one at something <font size=-2>(Source: London Times)</font>
Every country is number one at something (Source: London Times)

Additional links

That "Freedom Flotilla" of humanitarian aid and political activists is now expected to reach the vicinity of the Gaza strip on Monday morning, at which time the Israeli navy will attempt to divert it to the Israeli port of Ashdod. The flotilla was sponsored by Turkey, and a poll conducted on Sunday indicates that Israelis that formerly took vacations in Turkey are canceling them. Jerusalem Post.

Martin Wolf on the state of the euro zone: "It's also become increasingly clear as time has passed how deep the divisions are among the major European countries. So what you have is a weakening of the European economy, real doubts about the solvency of a number of countries, and an obvious perception of deep and profound disagreements between the two most important players [France and Germany]." CNN

Some Pakistani writers are claiming that the U.S. is considering a nuclear attack on Pakistan to take out the terrorists. Memri

A white pigeon has been detained by police in India under suspicion of being on a "spying mission" for Pakistan. The pigeon was found by a resident on the Indian side of the Indo-Pak border, carrying a message with a Pakistani phone number (303-6284620) and address on its body. After a recent killing of two Pakistan-based terrorists near the border, border residents have been asked to report anything suspicious, even pigeons. Express India

Humor for geeks: The Hollywood Operating System. I thought this was hilarious. "14. You cannot stop a destructive program or virus by unplugging the computer. Presumably the virus has it's own built-in power supply. ... 28. If a robot's eyes turn red, it becomes evil."

(Comments: For reader comments, questions and discussion, see the 31-May-10 News -- Louisiana versus the United States thread of the Generational Dynamics forum. Comments may be posted anonymously.) (31-May-2010) Permanent Link
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The rise of left-wing violence around the world

Left-wing violence is surging far ahead of right-wing violence

Leftist violence is rising around the world

Earlier this month, supposedly peaceful anti-austerity protests by pro-communist public sector union workers in Greece ended in the deaths of three people, including a pregnant woman, in a bank that the protestors decided to burn down. (See "6-May-10 News -- Deadly riots in Athens shock the world.")

These killings have led to a wider recognition that left-wing violence is on the rise in Europe and around the world.

In Asia, leftist violence has become organized and mainstream in some places. Yesterday, we reported on the carnage in India when Maoist terrorists sabotaged train tracks, causing two trains to collide. The Maoist insurgency in India is thought by many to be the a major threat to India's stability, as it spreads across the southeast of the country. Maoist violence has also spread to Nepal, while in Kyrgyzstan, leftist violence threatens a war with Uzbekistan.

But for the West, the real story is the rise of left-wing violence in Europe and, to a lesser extent, in America.

In an article last week in Financial Times, contributing editor and historian Simon Schama compares what's happening now to the aftermath of the bankruptcy of the French Monarchy in 1789, leading to the French Revolution:

"On the brink of a new age of rage

Far be it for me to make a dicey situation dicier but you can’t smell the sulphur in the air right now and not think we might be on the threshold of an age of rage. The Spanish unions have postponed a general strike; the bloody barricades and the red shirts might have been in Bangkok not Berlin; and, for the moment, the British coalition leaders sit side by side on the front bench like honeymooners canoodling on the porch; but in Europe and America there is a distinct possibility of a long hot summer of social umbrage.

Historians will tell you there is often a time-lag between the onset of economic disaster and the accumulation of social fury. In act one, the shock of a crisis initially triggers fearful disorientation; the rush for political saviours; instinctive responses of self-protection, but not the organised mobilisation of outrage. Whether in 1789 or now, an incoming regime riding the storm gets a fleeting moment to try to contain calamity. If it is seen to be straining every muscle to put things right it can, for a while, generate provisional legitimacy.

Act two is trickier. Objectively, economic conditions might be improving, but perceptions are everything and a breathing space gives room for a dangerously alienated public to take stock of the brutal interruption of their rising expectations. What happened to the march of income, the acquisition of property, the truism that the next generation will live better than the last? The full impact of the overthrow of these assumptions sinks in and engenders a sense of grievance that “Someone Else” must have engineered the common misfortune. The stock epithet the French Revolution gave to the financiers who were blamed for disaster was “rich egoists”. Our own plutocrats may not be headed for the tumbrils but the fact that financial catastrophe, with its effect on the “real” economy, came about through obscure transactions designed to do nothing except produce short-term profit aggravates a sense of social betrayal. ...

So we face a tinderbox moment, a test of the strength of democratic institutions in a time of extreme fiscal stress."

Schama's point is a reasonable one. As the financial crisis worsens, people lose their faith in the government's ability to prevent the crisis. This loss of faith can be buttressed by unrelated crises (such as the current oil crisis in the Gulf of Mexico) that serve to highlight the government's helplessness. People become increasingly contemptuous of the government and, as they do, violence increases. In the extreme, violence increases and the government breaks down, leading to anarchy and war. The question is whether the government -- any government -- can do anything to prevent this slide toward violence, anarchy and war. Generational Dynamics theory says that it cannot. These movements come from the people, not from the politicians, and the politicians can neither cause them nor prevent them.

The Fascists versus the Communists

That doesn't stop anyone from blaming the politicians. Ambrose Evans-Pritchard, writing in the Telegraph, doesn't hesitate to blame the increasing level of European violence in general on the EU government in Brussels, and in particular on the German government in Berlin.

According to Evans-Pritchard:

"It was refreshing to read "The Euro Burns" by Michael Schlecht, Die Linke’s ["The Left's"] economic guru, arguing that the primary cause of Euroland’s crisis is "German wage-dumping". He shows from Eurostat data that German labour costs rose 7pc between 2000 and 2008, compared to 34pc in Ireland, 30pc in Spain, Portugal, and Italy, 28pc in Greece and Holland, and 20pc in France. ...

Germany ran an accumulated trade surplus of €1,261bn over the period, while Spain ran a deficit of €598bn, and Portugal €273bn. This shell game was kept afloat by recycling German capital to Club Med debt markets beyond sustainable levels until it all blew up over Greece. The Club Med victims are now trapped. ..."

And so, having blamed the financial crisis on the Germans' savings habits, Evans-Pritchard blames Brussels' solution for making it worse, by imposing euro currency deflation on the PIIGS (Portugal, Italy, Ireland, Greece, Spain). He quotes socialist and communist leaders of Portugal:

"Communist leader Jerónimo de Sousa said last week that the country was being reduced to a "protectorate of Brussels", cowed into submission by financial blackmail. He invoked the civil war in 1383 when the country rallied heroically to expel the foreign opressor - with English help, the "ultimato inglês" as he calls it - from Portuguese soil."

Evans-Pritchard goes on:

"Portugal is not unique. I spent Saturday delving into the subcultures of Italy’s Rifondazione Comunista, Spain’s Izquierda Unida, Olivier Besancenot’s Parti Anti-Capitaliste in France, and Germany’s Linke (Left). While it is too early to talk of a pan-European revolt against EMU-deflation, the Left is starting to offer the only coherent critique of what has gone wrong with monetary union and why there can be no durable solution until the EU creates full fiscal union."

I wanted to quote Evans-Pritchard's argument at length because he pits the left against the Germans, and because he appears to be excusing left-wing violence. (If you don't like the word "excusing," then try "understanding" or even "condoning.")

The unwritten implication is that the WW II battle between the Fascists and Communists is being re-fought, and that the Communists ought to win it (again).

This concept of a new war between the Fascists and the Communists may not be so far-fetched, and is in fact supported by the German magazine Der Spiegel, in an article entitled "The Return of the Radicals - Crisis Fuels Rise in Left-Wing Extremist Violence." The article points out that left-wing militancy by "anti-fascist groups" on the streets of Germany is increasing, but quotes a left-wing militant as being shocked by the deaths in Greece:

"He begins to talk about Greece. The revolutionary resistance there seemed to have entered a promising phase, with unions and autonomists united on the streets. It was going so well, he says. And now this.

Violence, he says, must be used constructively and "responsibly," not against people -- especially now that things in Germany are also gaining momentum again. "There's been a rise in the number of night-time actions," he says, "and militancy on the street is increasing."

The opposition in this struggle -- Germany's federal government -- has observed the same trend and is worried about this renaissance of left-wing violence in the country. German Interior Ministry crime statistics for 2009 show a 53 percent jump in the number of left-wing attacks, the largest increase seen in many years. Police recorded a total of 1,822 left-wing acts of violence in all of Germany, considerably more than those committed by right-wing extremists."

The use of violence "constructively and responsibly," but not against people, is completely absurd, but its acceptance by the people at Der Spiegel, as well as in the mainstream press, is a measure of today's insanity.

This last sentence captures a central point of this article: that left-wing violence is soaring, while right-wing violence is not, and yet, the journalists and general public seem to excuse and condone left-wing violence.

According to the article, left-wing violence was relatively dormant before 2007, but really took off after the G-8 meeting in Heiligendamm, Germany, in 2007, and has increased since then, as the financial crisis has worsened. The increasing evidence that bankers, politicians and financiers have committed fraud while making enormous amounts of money for themselves has given left-wing groups a free pass to condone or commit "responsible and constructive" violence, when directed against non-favored groups.

Excusing left-wing violence

There are many examples of the excusing of left-violence.

Marwan Barghouti is a Palestinian terrorist who sits in an Israeli jail serving five life sentences, having been convicted of killing many civilians through terrorist attacks. According to Memri, a network of a dozen Communist Party mayors of municipalities in France are openly expressing solidarity with Barghouti. They're calling for him to be set free, presumably so that he can blow up more civilians. Would these mayors feel the same way about terrorists who committed massacres in their own municipalities?

In America, the mainstream media talks endlessly about the how dangerous the mere WORDS of the Tea Party movement are, while often ignoring actual acts of left-wing violence.

For example, the FBI had to be called in to investigate a May 1 left-wing "methodical and coordinated" attack by anarchists in Santa Cruz, California, on May 1, according to the San Jose Mercury News. And yet, this violence was barely noticed by the mainstream media outside of Silicon Valley, even though it has national implications.

Breaking a few eggs

In his article, Ambrose Evans-Pritchard calls leftist violence "more benign" than right-wing violence.

This is a remarkable conclusion when you consider the fact that of the three bloodiest and most genocidal dictators of the 20th century -- Adolf Hitler, Mao Zedong and Josef Stalin -- two were left-wing dictators, only one was right-wing. Each one of these dictators killed tens of millions of innocent people, so it's hard for me to see why two of them are benign. And if you throw Pol Pot into the mix, who killed merely millions of innocent people, that's three out of four. So there's nothing benign about left-wing violence.

Something that I've heard throughout my life from Boomer intelligentsia was that left-wing violence was to be excused because "You have to break a few eggs to make an omelet." That is, it's OK to kill millions or tens of millions of people, since your goal is a socialist workers' paradise. This is presumably the same kind of paradise that Osama bin Laden promises to suicide bombers who wish to qualify for 72 virgins. And it must be similar to the paradise that Hitler promised the Germans, once those darned Jews and Russians had been exterminated.

Still, it's worth asking: What's the different between left-wing and right-wing violence. More generally, what's the difference between the left wing and the right wing?

I do remember what my teachers told me when I was in school in the 1950s and 1960s. They told me that in Communism and socialism, the government owned everything, while in Fascism, there was private ownership of property, though still controlled by the dictatorial government.

I keep thinking of the irony of what my teachers told me as I look at China and see that, under their definitions, China has moved from a Communist country in the 1950s to a Fascist country today. But nobody calls it a Fascist country, of course, because fascist violence is out of fashion, while communist or socialist violence is sooooooooooooooo in fashion, though I assume that it makes little difference to the people being killed or their familes.

Ya know, ya gotta hand it to Hitler - at least he was honest about what he was doing. He was going to exterminate the Jews to leave behind a superior race, and he was going to exterminate the Russians to give his superior race some Lebensraum.

And I guess you could say that leftist dictators were honest too. Stalin knew that he wanted to exterminate the Ukrainians through starvation, for example.

So what's the difference?

That's the point -- whether you call violence "left-wing" or "right-wing" depends on what's in fashion. In the 1950s and 1960s, when my teachers were telling me their definitions, it was increasingly fashionable among young Boomers, and their teachers, to describe America's capitalism as just another form of fascism. These young Boomers would walk around with copies of "Chairman Mao's Little Red Book of Quotations" in their back pockets, not concerned that, at the same time, Chairman Mao was barbarically slaughtering tens of millions of Chinese in the Great Leap Forward and the Cultural Revolution. Well, you have to break a few eggs to make an omelet, don't you.

The future of left-wing and right-wing violence

It's truly remarkable today that left-wing violence is approved and condoned by the mainstream media and by many politicians. Of course there's a "not in my back yard" flavor to the approval, but there's approval nonetheless. And left-wing violence is growing.

And yet, right-wing violence is almost non-existent today, and shows no sign of growing. How is that possible?

My guess is that it's simply fashion in labeling. If you're a terrorist and you want to blow up a school bus full of kids, then you call yourself left-wing so that you'll be a "good guy"; you wouldn't want to call yourself right-wing, since that would make you a "bad guy," even though the actual murder of the children in the bus would be no different.

It's worthwhile remembering that Fascism was once considered highly fashionable by the intelligentsia. There were anti-government riots in the early 1930s, and when Franklin Roosevelt took office, Benito Mussolini's Fascism was considered a model for the New Deal. After all, it was said, "Mussolini may be a dictator, but at least he keeps the trains running on time." Later, when Mussolini teamed up with Hitler, Fascism became unfashionable.

The articles that we quoted at the beginning of this essay all point to increases in violence. Simon Schama wrote "The world teeters on the brink of a new age of rage ... we face a tinderbox moment a test of the strength of democratic institutions in a time of extreme fiscal stress."

Whether the violence turns into a tinderbox as early as this summer remains to be seen, but there's no doubt that violence will increase as the financial crisis worsens. And current trends indicate that the worsening violence will be left-wing violence, not right-wing violence.

Does that mean that right-wing violence is gone forever? Hardly. It was the success of the Communists in Germany that led to the rise of Hitler and the right wing in Germany.

As left-wing violence grows, we can expect to see the countervailing rise of right-wing violence, forming opposing political identity groups, just like religious identity groups that can form and go to war with each other. The violence is the same -- just the label is different.

From the point of view of Generational Dynamics, this rise of left-wing and then right-wing violence is possibly a major part of whatever scenario leads us to the Clash of Civilizations world war.

(Comments: For reader comments, questions and discussion, see the 30-May-10 The rise of left-wing violence around the world thread of the Generational Dynamics forum. Comments may be posted anonymously.) (30-May-2010) Permanent Link
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29-May-10 News -- Terrorist attacks create carnage in Pakistan and India

China signals that it will side with South Korea on the warship sinking

Sunni terrorists massacre Shia worshippers in Lahore, Pakistan

Punjabi Taliban (Sunni Islamist terrorists) have taken credit for a massacre on Friday morning at two Shia Muslim mosques in Lahore, Pakistan, just as prayers were beginning on the holiest day of the week.

80 people were killed and at least 92 were injured in the attacks, according to Pakistan's Daily Times.

At each mosque, the terrorists fired indiscrimately at worshippers, killing them at will with gunfire and grenades. The violence continued for three hours as they held off police by means of more gunfire and grenades. One of the terrorists blew himself up to avoid being captured.

Historically, Sunni and Shia Muslims have found many wars of extermination with each other. Shia Muslims have historically been allied with Hindus in many of these wars.

The worshippers were part of a small Shia sect known as the Ahmadis.

According to a profile at, Ahmadis are followers of Mirza Ghulam Ahmad, who founded the sect in the late 1800s. According to the profile, Ahmadis have been the subjects of attacks and societal discrimination since the founding of Pakistan.

From the point of view of Generational Dynamics, Pakistan and India are approaching a war refighting the genocidal ethnic and religious war that followed Partition (the partitioning of the Indian subcontinent into Pakistan and India in 1947). Friday's massacre appears to be part of that scenario.

Maoist terrorist sabotage causes train collision

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)

As we've previously reported (see "19-May-10 News -- Maoist terrorism puts India on high alert"), India has been on high alert after a series of high profile terrorist attacks by Maoist terrorists. Of particular concern was the safety of trains and buses.

On Friday, 81 people were killed and 150 were wounded when two trains collided in the night, with the collision apparently engineered by Maoist terrorists, according to the Calcutta Telegraph.

The terrorists sabotaged a portion of the tracks by removing clips that keep the tracks in place. With the clips gone, the tracks became unstable as the train rolled over that portion, and the train tipped over and collided with a train coming from the opposite direction on another track. Click here for a graphic diagram that shows what happened.

This is the third major terrorist attack by the Maoists in a couple of months. For example, here's the opinion of one columnist, Barkha Dutt, appearing in the Hindustan Times, where he refers to the previous attacks in Dantewada and Mangalore:

"Perhaps nothing was more indicative of the paralysis that now plagues any discourse on Maoist violence than the confusion, tentativeness and prevarications that followed Bengal’s train tragedy yesterday. Coming right after ten horrible days that have driven home life’s essential fragility to us as a country — first Dantewada, then the Mangalore air crash — the tragedy of watching bodies being pulled out from under heaps of metal was underlined by the apparent nervousness within the political establishment. ...

The public rhetoric around the Naxal debate has certainly created the impression of India being a coun try that is fiercely divided over how best to tackle the terror of the ultra-Left. This impression has been falsely reinforced by facile media debates that deliberately seek shrill polarisations and ask the people of India to choose between extremes."

What's interesting about this particular statement is its focus on paralysis and "shrill polarisations." This is exactly the same thing that we've discussed as occurring in Washington and other countries. It's typical of a generational Crisis era, up to the point where a "regeneracy event" puts the nation's survival in question, and forces civic unity to be "regenerated" behind the leaders.

Remarkably, with terrorist attacks being perpetrated by Maoists, by Hindu extremists, and by Sunni Muslim extremists in India, in Kashmir, and right across the border in Lahore, India has not yet reached the point where it can unite to resolve these problems.

Additional links

Chinese Premier Wen Jiabao has told South Korean president Lee Myung-bak that "We will shield no one." This remark is being interpreted to mean that Beijing agrees with Seoul's conclusion that the North Koreans are responsible for the torpedo attack that sank the Cheonan warship on March 26, killing 46. JoongAng

A harsh United Nations report on North Korea finds that that the country is using shell companies and overseas criminal networks to circumvent U.N. sanctions and sell nuclear weapons technology to other countries. The 47 page report details numerous North Korean violations, especially violations related to weapons of mass destruction (WMDs). Associated Press

Fitch Ratings service lowered the AAA credit rating on Spain's debt one step down to AA+. S&P Ratings service lowered Spain's credit rating on April 28. Bloomberg

Is Europe heading for a meltdown? Europe has run out of moves; one more mistake, and it's game over. Telegraph

For years we've described China's military preparations for war with the United States. The US is developing an air-sea battle concept to counter China's military buildup, but political and budgetary problems may kill the program. International Relations and Security Network (ISN)

(Comments: For reader comments, questions and discussion, see the 29-May-10 News -- Terrorist attacks create carnage in Pakistan and India thread of the Generational Dynamics forum. Comments may be posted anonymously.) (29-May-2010) Permanent Link
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28-May-10 News -- Tempers flare on Korean peninsula

Terrorists bomb a concert crowd in southern Russia

Terrorist bomb in southern Russia kills people at concert

A bomb exploded among a crowd waiting to enter a theatre in Stavropol in Russia on Wednesday evening. Seven people died and more than 40 were injured, according to Ria Novosti.

The bomb was a homemade device, with TNT packed into a juice container, so that it was not detected prior to the explosion.

Stavropol is just north of Russia's Caucasus provinces of Chechnya and Dagestan, where there has been a great deal of ethnic and terrorist violence. Stavropol itself has been relatively free of violence, so this bombing apparently represents an expansion and deepening of terrorist violence in Caucasus.

From the point of view of Generational Dynamics, the Caucasus region is one of the most dangerous in the world because it's deep into a generational Crisis era, and because it's been the site, over the centuries, of numerous ethnic and religious wars between the Orthodox Christian civilization and the Muslim civilization.

According to Russian Television, Nikolay Petrov from the Carnegie Moscow Center says that what is going on now is not only an escalation of terrorist attacks in the region, but an expansion of the region where previous attacks have taken place, and that terrorism may be spreading throughout the region.

Tempers flare in North and South Korea

Tensions continue to mount on the Korean peninsula, as each side continues to take steps that are confrontational to the other side.

North Korea said it would "completely nullify" inter-Korean agreements designed to prevent military confrontations, according to JoongAng. These pacts were signed in the past decade to avoid misunderstandings that might lead to military clashes.

These measures include cutting off a naval hot line between the two capitals. This phone line was installed to prevent a repeat of deadly naval skirmishes that happened in 1999 and 2002, according to the NY Times.

In addition, North Korea warned that if South Korean ships intrude into North Korean seas, it will launch "a prompt physical strike."

These threats came on the same day that the South Korean navy conducted a large anti-submarine drill in the waters separating the North and South.

On the same day, a large rally in Seoul demanded revenge and retaliation for the sinking, on March 26, of the South's warship Cheonan, killing 46, by a North Korean torpedo. There were thousands of demonstrators, most of them elderly survivors of the 1950s Korean war, according to VOA.

At the same time, Japan's Yomiuri news service is reporting that the Japanese parliament is imposing its own sanctions on North Korea. In particular, the Japan Coast Guard will begin inspecting all North Korean cargo vessels arriving in Japan. These sanctions will directly affect the 600,000 Koreans living in Japan, especially the "pro-Pyongyang" General Association of Korean Residents.

There are now many, many ways for a war to start between North and South Korea -- many more ways than existed only a few weeks ago. The simplest would be a miscalculation or misunderstanding arising from some line being crossed somewhere, and with the "shoot first and talk later" attitude increasingly being adopted by both sides, such an event could quickly spiral out of control.

'Freedom Flotilla' of humanitarian aid heads for Gaza

A monstrous political publicity stunt will come to a head on Friday, when a "Freedom Flotilla" of 8 ships carrying some 700 political activists and 10,000 tons of aid and construction materials will approach the Gaza Strip from Turkey and European ports.

Israel has vowed to blockade the flotilla, preventing the ships from reaching Gaza, according to CS Monitor.

Turkey has demanded that Israel permit the flotilla to reach Gaza, according to the Palestinian Imemc news service.

The Israelis say that the aid will reach Gaza, according to Haaretz, but the flotilla will be required to land at the Israeli port of Ashdod first, so that the cargo can be inspected first.

Meanwhile, the Jerusalem Post reports that a "counter PR stunt" will be launched by a group protesting Hamas's terror record.

It sounds like it will be a lot of fun, with a good time to be had by all.

But a UPI analysis points out that this is just one more step deepening the split between former allies Turkey and Israel, which is consistent with trends that I've described before.

Additional links

Local elections will be held all across South Korea on June 2. The results of these elections will provide some indication of who the people believe is at fault for handling the Cheonan incident, and whether there is a widespread desire for revenge. Asia Sentinel

For those wondering how a new Korean War might unfold, here are the specs for CONPLAN 8022, developed when Donald Rumsfeld was Secretary of Defense. Pajamas Media

The Korean War began 60 years ago, on June 25, 1950. This brief history tells why it's "the war that never ends." Asia Times

China's huge real estate bubble has caused millions of people to be routed from their homes by wealthy land developers who appropriate the land, demolish the homes that are on it, and construct new buildings. But now the peasants are fighting back. NY Times

A government-created baby boom in Germany has failed to materialize, as the country becomes increasingly gray. Spiegel

Under a secret directive signed last September by Gen. David H. Petraeus, the US is vastly expanding the use of Special Operations troops throughout Mideast, particularly directed against Iran. NY Times

US and EU are oceans apart on fiscal policy. In particular, the Europeans want to cut budgets, while the US would like Europe to provide more stimulus to their economies. Spiegel

Tens of thousands of French workers took to the streets on Thursday to protest gradually raising the retirement age from 60. Telegraph

Rock star M.I.A. (Maya Arulpragasam) is a very hot chick and a very controversial artist, because she is a Sri Lankan Tamil, and she used her fame to support the Tamil Tigers during the civil war that ended last year. NY Times

Exercising the throat muscles can help relieve sleep apnea. NY Times

How Tetris conquered the world. Telegraph

(Comments: For reader comments, questions and discussion, see the 28-May-10 News -- Tempers flare on Korean peninsula thread of the Generational Dynamics forum. Comments may be posted anonymously.) (28-May-2010) Permanent Link
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27-May-10 News -- Iran clashes with Russia over nuclear sanctions

Interbank lending is slowing again, raising concerns of new credit crisis

Iran gets testy after Turkey/Brazil ploy fails

As we described last week, Iran came up with a very clever ploy to preclude Western sanctions. Iran made a deal with Turkey and Brazil to have Brazil enrich Iran's uranium, so that Iran won't do its own uranium enrichment. (See "18-May-10 News -- Iran may have snookered the West, with the help of Turkey and Brazil.")

However, the ploy appears to have failed, as the West is going ahead with sanctions. Furthermore, the sanctions will apparently NOT be vetoed by either Russia or China in the United Nations Security Council. According to Politico, Congressional plans for U.S.-only sanctions will now be delayed to allow the administration to push the U.N. sanctions.

The failure of the Iranian ploy appears to have caused quite a bit of consternation in Iran. According to the Tehran Times, Iran's government is still waiting for the West to approve of the deal with Brazil and Turkey.

More significant is a major clash between Iran and Russia over Russia's agreement to support the sanctions, according to the NY Times. In blunt language, Iranian president Mahmoud Ahmadinejad blasted Russia for bowing to US pressure, and added, "If I were the Russian president, when making decisions about subjects related to a great nation (Iran) ... I would act more cautiously, I would think more."

A Kremlin official shot back, "No one has ever managed to preserve one's authority with political demagoguery. I am convinced, the thousand-year history of Iran itself is evidence of this. The Russian Federation is governed by its own long-term state interests. Our position is Russian: it reflects the interests of all the peoples of greater Russia and so it can be neither pro-American nor pro-Iranian."

This clash with Russia appears to be an act of desperation by an Iranian administration increasingly out of touch with its own people and, perhaps more importantly, not in control of the Revolutionary Guards. (See "Revolutionary Guards in Iran's government - military dictatorship?")

Iran is only a few years into its generational Awakening era, following the Islamic Revolution of the 1979 and the Iran/Iraq war that climaxed in 1987. At this point in the Awakening era, Ahmadinejad would be facing an enormous amount of political pressure from the young generation born after the war. The massive "green movement" student demonstrations that followed last year's June 12 presidential elections have been temporarily quiesced by means of extreme violence against the demonstrators, but they have not ended. Furthermore, the Revolutionary Guard itself, which was originally formed to protect the goals of the Islamic Revolution, is now populated by the same young people who have little patience with the austere demands of the old fogie hardliners running the government.

As I've said many times before, my expectation is that Iran will side with the West (including the US and Israel) when forced to choose in the Clash of Civilizations world war, since the Iranian people are far more pro-American and pro-West than the government is.

Ahmedinejad's outburst sounds desperate to me. If it is, then Iran's government may be forced to reform soon.

Additional links

Interbank lending has been showing increasing strain for several weeks, as measured the by "Libor" rate, which measures the interest rates that banks charge one another. Although the libor rate is still below the peaks it reached after the Lehman collapse, the continually increasing rate is raising concerns for a new credit crisis. Telegraph

"I've been drunk many times, and I know that the best way to postpone a hangover is to keep on drinking." -- Marc Faber, in a tv interview, when asked why not use more stimulus packages?

Greece's tourism industry, which was supposed to help the country's recovery, is in crisis. Reservations are down by 30% since last year and cancellations are soaring, because of general strikes and mass protests, and stories of corruption, sleaze and fraud. Spiegel

A recent survey of Japanese bond investors shows that the Japanese no longer trust European bonds. Financial Times

8 reasons why you should care about the world debt crisis. CS Monitor

First human 'infected with a computer virus.' BBC

Syria has supplied Hizbollah with 1,000 ballistic missiles that are now pointed at specific Israeli military and civilian targets. Debka

Prostitutes are blamed for the property bubble in Beijing. Asia Times

Mount Baekdu is a dormant volcano on the border between North Korea and China, and it's increasingly showing signs of being about to erupt. Korea Times

Indian Prime Minister Manmohan Singh has vowed to bridge the "trust gap" with Pakistan, and to overcome the strains that have occurred since Pakistan-based militants attacked Mumbai in 2008. BBC

The Mexican government is all but applauding President Obama's plan to send 1200 National Guard troops to the US-Mexico border, because the troops won't be used to enforce immigration law. CS Monitor

(Comments: For reader comments, questions and discussion, see the 27-May-10 News -- Iran clashes with Russia over nuclear sanctions thread of the Generational Dynamics forum. Comments may be posted anonymously.) (27-May-2010) Permanent Link
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26-May-10 News -- Is North Korea preparing for war?

Austerity programs in countries across Europe threaten the economy

North Korea responds to South's president's speech

Tuesday's major development is that North Korea cut all ties with South Korea. The statement is the response to Monday's televised speech by South Korean president Lee Myung-bak, outlining retaliation for the North's sinking of the Cheonan warship. I described that speech in detail yesterday.

The following are portions of the statement issued by the North's official Korean Central News Agency (KCNA), as quoted by Reuters:

"The Committee for the Peaceful Reunification of Korea, accordingly, formally declares that from now on it will put into force the resolute measures to totally freeze the inter-Korean relations, totally abrogate the agreement on non-aggression between the north and the south and completely halt the inter-Korean cooperation.

In this connection, the following measures will be taken at the first phase:

1. All relations with the puppet authorities will be severed.

2. There will be neither dialogue nor contact between the authorities during (South Korean President) Lee Myung Bak's tenure of office.

3. The work of the Panmunjom Red Cross liaison representatives will be completely suspended.

4. All communication links between the north and the south will be cut off.

5. The Consultative Office for North-South Economic Cooperation in the Kaesong Industrial Zone will be frozen and dismantled and all the personnel concerned of the south side will be expelled without delay.

6. We will start all-out counterattack against the puppet group's 'psychological warfare against the north.'

7. The passage of South Korean ships and airliners through the territorial waters and air of our side will be totally banned.

8. All the issues arising in the inter-Korean relations will be handled under a wartime law.

There is no need to show any mercy or patience for such confrontation maniacs, sycophants and traitors and wicked warmongers as the (South Korean President) Lee Myung Bak group."

So far this is all rhetoric. However, there is some ambiguity about what is meant by "counterattack" with respect to the South's "psychological warfare." As we reported yesterday, there was a threat on Monday to shoot to destroy the South's loudspeakers, and it's not clear whether that threat has been rescinded.

However, it may also be that some actual war preparations are being taken. The Chosun news agency reports that Kim Jong-il has used a secret communication network to order the entire army to prepare for war, and that the North should "achieve the reunification of the fatherland by all means" since it failed during the 1950s Korean War.

(The secret communication network is something I hadn't heard of before, but it seems like something directly out of George Orwell's "1984." Apparently there are speakers in everyone's home connected by wire to Pyongyang. Kim can broadcast to these speakers information or orders that he doesn't want the outside world to know about.)

The order to prepare for war was obtained by defectors through unnamed sources in the North, but it hasn't been confirmed. But if the North is truly preparing for war, that's a very ominous sign.

Will there be a war?

From the point of view of Generational Dynamics, this is the wrong question to ask. North and South Korea are in generational Crisis eras, and there's a clear fault line with enormous anger and hostility across it. There WILL be a war, with almost mathematical certainty, so the correct question is whether the current crisis will lead to an immediate war.

I was surprised to hear former Ambassador John Bolton on television say that he considers it very unlikely that there'll be a war. Bolton has always taken a very hardline towards Iran, China and North Korea, and he did so again. But he scoffed at the possibility that Kim Jong-il will start a war, saying that Kim's threats are empty. "Next he'll say that you'll see a 'sea of fire' across the Korean peninsula. He's got a series of these things."

A web site reader forwarded to me a message he'd received from his friend who works in South Korea: "It is kind of a strange situation over here. The people I work with don't seem to concern themselves with these matters. Just this morning President Lee addressed the ROK [Republic of Korea or South Korea] via live tv broadcast and after I finished reading the English transcript I went ahead and asked a few of my co-workers what they thought of the speech. No one had watched it and no one seemed to think much of it. All they said was 'this sort of thing happens often and nothing will come of it.'"

This reminds me that most Northerners were completely surprised in 1861 when the American Civil War started, even though the South had threatened it many times. Even so, they didn't take the war seriously until several months later, when the bloody Battle of Bull Run shocked them into understanding that a real war was going on. (Paragraph added on 26-May)

An analysis entitled "How likely is a war between North and South Korea?" appearing in the Guardian, calls the threats and counter-threats saber rattling, and adds that "both sides have sent clear signals they would refrain from initiating any attack." But the reasons given in the analysis for the attack being unlikely are not convincing.

One reason is that "the North Korean army is in no shape to fight against a well-trained, well-equipped modern army from the South, backed by 29,000 US troops" and that soldiers have "little to eat." But they are not reasons for avoiding war; these are reasons for pursuing war.

The North Korean army has a million men. They could swarm across the demilitarized zone and be in Seoul in a few hours, and they could be motivated by the promise of free food in Seoul. Given a choice between going on for months and years with little food for himself and his family, versus going to war to solve all his problems, it's clear what choice a soldier will make. This is particularly true of a generational Crisis era, when there is little fear of war, because there's no memory of the preceding crisis war.

Another reason given by the article is that China "will want to keep its wayward neighbour in check." But Kim Jong-il has repeatedly humiliated China through his belligerence -- testing nuclear weapons, sinking the Cheonan, for example. It may be that China will want to keep Kim in check, but there's absolutely no reason to believe that China can succeed.

In a generational Crisis era, wars are not fought for rational reasons. Yesterday I posted the six most prominent theories about why the North Koreans sank the Cheonan, and today I'm posting the reasons why the North won't want a war. But this is all rationalized nonsense.

North Korea is a starving country, and the situation get worse every month. North Korea is completely isolated and cut off from the rest of the world, so they have little idea what's going on. North Korea is very paranoid, so the little information they get can be interpreted as a cause for war.

If you'd like a modern day example, one that I've written about many times, consider how Israel, in a generational Crisis era, panicked and attack Hizbollah in Lebanon in 2006 with absolutely no plan and no objective. (See: "Israel/Lebanon war forces Muslims to choose," and "How Israel panicked in pursuing the summer Lebanon war with Hizbollah.") Or, recall that the American invasion of Iraq was caused by panic over WMDs. (See: "The Iraq war may be related to the bombing of Hiroshima and Nagasaki.")

It's not surprising that Ambassador Bolton and the South Koreans don't think that there'll be any war. They assume that the North Koreans will continue to act as they always have in the past, forgetting that generational changes have occurred, putting younger people in charge, and the economic situation has substantially worsened.

At some point, maybe tomorrow, maybe next month, maybe next year, the North Koreans are going to panic, and they'll decide that their million man army, underfed and underequipped as it is, is still large enough to overwhelm the South Korean and American defenders. They will be deluding themselves, but that's the stuff of history.

Additional links

The International Monetary Fund (IMF) has issued a blunt warning to Spain to implement harsh budget cuts and transform the country's labor market. EU Observer

The government of Italy has already approved massive spending cuts, to take effect next year. Public sector workers and pensions will be especially hard hit, resulting in protests from labor unions. BBC

Austerity drives are taking place in one country after another in Europe, reflecting a huge change in public attitude that something must be done to avoid Greece's path. However, economists are warning that these austerity drives will harm Europe's economy. NY Times

A Syrian-backed terrorist group loaded up a donkey with explosives and detonated the donkey near the Gaza border. There were no human casualties but --- poor donkey! Jerusalem Post

President Obama will send up to 1200 additional National Guard troop to patrol the border with Mexico. LA Times

Talks in Beijing between the US and China have brought forth no agreements on North Korea or currency. The Hindu

(Comments: For reader comments, questions and discussion, see the 26-May-10 News -- Is North Korea preparing for war? thread of the Generational Dynamics forum. Comments may be posted anonymously.) (26-May-2010) Permanent Link
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25-May-10 News -- Belligerent words between North and South Korea

Britain is moving 'from an age of plenty to an age of austerity'

[A technical problem has caused this to be posted late.]

North and South Korea exchange belligerent words

The major development on Monday was a televised speech by South Korean president Lee Myung-bak outlining retaliation against North Korea, following last week's report that the the North was the guilty party in the sinking of the warship Cheonan on March 26, killing 46.

"S Korea takes punitive measures against DPRK over warship sinking," where DPRK = Democratic People's Republic of Korea = North Korea, is the way that China's news agency Xinhua headlines its article on Lee's speech. These are the major points, according to the article:

The "propaganda activities" mentioned above refer to a program called "The Sound of Freedom," according to JoongAng. The program was suspended in 2004, but now will be reinstated. South Korean loudspeakers on the border will blast propaganda messages into the North.

The North Koreans replied that they will fire at the loudspeakers, shooting to destroy them.

South Korea's defense minister replied that if North Korea attacks South Korean loudspeakers, "then there’s no other choice than to strike back immediately."

So you already have a situation where EITHER there will be a military confrontation OR the North will have to back down OR the South will have to back down.

Why did North Korea sink the Cheonan warship?

An article in Financial Times conveniently lists the "top six theories" about why North Korean president Kim Jong-il ordered the attack. Here they are in brief:

It's certainly possible that one or more of these reasons played a part. But as I wrote last week, I'm increasingly convinced that North Korea wants a new war.

From the point of view of Generational Dynamics, this would not be surprising at all. It's the worst kind of national self-delusion and fantasy that if life is hell then a war can't be any worse, and will solve all your problems.

Additional links

Britain is moving "from an age of plenty to an age of austerity," according to David Laws, chief secretary to the treasury, as the new government announced £6 billion worth of immediate spending cuts, with the possibility that 300,000 public sector workers will be laid off. Laws says that the cuts will be made with "progressive values." Irish Times

The European debt crisis is causing yields (interest rates) on all corporate bonds to surge, pushing sales down. Companies have issued $47 billion of debt in May, down from $183 billion in April. The rise in bond yields is the worst since the collapse of Lehman Brothers in September, 2008. Bloomberg

Child mortality is dropping rapidly around the world. Death rates for children under 5 have been dropping by about 2% a year from 1990 to 2010. Some parts of Latin America, north Africa and the Middle East have had declines as steep as 6% a year. NY Times. As the gloomiest person in the world, it falls to me to point out that this worsens the population explosion and the food shortage, and will mean hundreds of millions of additional deaths in the coming Clash of Civilizations world war.

European skies are ash-free for the first time in 40 days, as Iceland's Eyjafjallajokull (ay-yah-FYAH-lah-yer-kuhl) volcano finally shows signs of settling down. Bloomberg

(Comments: For reader comments, questions and discussion, see the 25-May-10 News -- Belligerent words between North and South Korea thread of the Generational Dynamics forum. Comments may be posted anonymously.) (25-May-2010) Permanent Link
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24-May-10 News -- Les Miserables of Thailand at a turning point

S. Korean president gives harsh speech severing commercial ties with North

Thailand citizens clean up Bangkok business district to reopen on Monday

Thousands of middle and upper class Thai citizens were out on the streets of Bangkok on Sunday with brooms and mops to clean the streets, and razor knives to scratch off the anti-government posters.

The clean up is necessary after two months of occupation by lower-class "red shirt" protestors. The protests finally ended on Wednesday when the Thai army ran tanks through their barricades and assaulted them with live ammunition, and after the most radical elements of the protestors retaliated by burning down shopping centers and the stock exchange.

Class bitterness runs very deep now. The Times of India quotes a dress shop owner as saying, "I think the Red Shirts are not Thai people because they destroyed things, they destroyed Bangkok, they destroyed Thailand. My friends have shops here, destroyed, they have nothing."

The feeling among Bangkok's upper classes is that the red shirt protestors wanted to destroy the city. One health club owner was glad that the battle against the protestors had been won, but she's worried that they'll be back, according to Washington Post. "It's not over. It has just begun."

The government has imposed curfews in Bangkok and 23 provinces, and they continue to be extended until the government feels safe.

There's great bitterness on the red shirt side as well. As many as 500 red shirt activists have been arrested across the country, according to red shirt estimates. One leader is quoted as saying, "We are finished. We lost everything. Right now we have to save just ourselves. Instead of getting half, we got nothing."

Warnings are widespread that violence will continue, perhaps moving from Bangkok out to the provinces. Anger is perhaps greatest in the province of Chiang Mai, the original power base of former prime minister Thaksin Shinawatra, who champions the red shirts, according to the Globe and Mail. One leader is quoted as saying, "We want to tell people that we are not hiding, that we are going to fight again after the emergency decree and the curfews are over."

Some analysts are predicting that the fighting will resume worse than ever. For example, some analysts quoted by Der Spiegel predict civil war.

Whatever happens now, it seems clear that a turning point has been reached. In the following section, we'll assess what this turning point will look like, from the point of view of Generational Dynamics.

Les Misérables of Thailand

Victor Hugo's great novel, Les Misérables describes the failed uprising of students that occurred in Paris in 1832. This uprising occurred toward the end of the generational Awakening era in France, three decades after the French Revolution.

Likewise, the recent violent protests in Bangkok occurred towards the end of a generational Awakening era, following Thailand's last crisis war, the "killing fields" civil war of Cambodia that ended in 1979.

In the past year, I've posted two videos of music from the play Les Misérables. One was a video of Susan Boyle's spectacular performance last year of "I Dreamed a Dream" -- a video that's well worth another listen.

And the second was more recent, the video of the song "Do You Hear the People Sing?" in an article on Greeks protesting austerity measures.

But actually, Les Misérables is most relevant to the recent failed uprising in Bangkok. The protestors have been defeated, and they've lost everything.

So here's another video of music from Les Misérables, Michael Ball singing "Empty Chairs at Empty Tables":

The tremendous sadness of this song must convey exactly how the red shirt protestors of Thailand feel today, having had all their hopes and dreams destroyed, and having gained nothing.

The future of Thailand

The collapse of the red shirt protests appears to me to be what's called an "Awakening era climax," a moment in which political victory has been unambiguously achieved.

An Awakening era is always a political battle between two generations, the generation of survivors of the last crisis war versus their children's generation. The Awakening era climax resolves this "generation gap" battle in a political victory, and it's almost always a political victory of the younger generation. This happened in the U.S. in 1974, for example, when President Richard Nixon was forced to resign.

However, it's very dangerous for a country if the older generation wins, and the generation gap mutates into a fault line war between two groups. That happened, for example, in 1989 in the Tiananmen Square massacre in Beijing, when the élite Chinese Communist Party forces defeated the peasant groups represented by the demonstrators.

As we've reported at length in the past, this confrontation in Thailand pits two ethnic groups against each other. The army and government forces represent the Thai-Chinese fair-skinned elite market-dominant minority, while the red-shirted protestors represent the indigenous dark-skinned laborers, mostly migrants from the north and northeast.

The red shirts won their victory almost ten years ago, with the election of their hero, Thaksin Shinawatra, as prime minister in 2001, and his reelection in 2005. Thaksin was very popular with the lower class laborers, whom he favored with large spending programs for their benefit. But this made him increasingly unpopular with wealthy elite Thai-Chinese class.

It's worth taking a moment to look at the mathematics of the situation. The size of the Thai laboring class is about three times the size of the Thai-Chinese elite class. This means that the laboring class is going to win elections, and it also means that wealth is going to be transferred from the elites to the laborers. This is going to make the elites unhappy, and they'll find ways to maintain power by force.

In 2006, the army, siding with Thailand's elite, staged a bloodless coup, overthrowing the Thaksin government. There were new elections, and Thaksin's party won, resulting in Thaksin's ally, Samak Sundaravej, becoming prime minister.

Well, it turns out that Samak is also quite a good amateur cook, and for many years he hosted a televised cooking show. He kept on with the cooking show after he became Prime Minister, causing a court, siding with the elites, to remove him from office, because the cooking show represented a conflict of interest with his job as Prime Minister.

So another Thaksin ally, Somchai Wongsawat, became prime minister. This time there were massive protests by elites, and the courts ruled that Somchai and other Thaksin allies should be banned from holding office.

So now the elites have gotten their way, with prime minister Abhisit Vejjajiva. The army and the courts have used their power to make sure that Thaksin's allies cannot return, and rural Thai ethnic groups feel REALLY SCREWED.

So will there be a civil war? Well, that's not how it works. As the Awakening era ends and the Unraveling era begins, there will be low-level violence, and it will be handled by police action of various kinds. But there cannot be any great civil war between the two ethnic groups until the next Crisis era.

There's one more point to be made about civil war. Recall that many historians say that the Sri Lanka civil war, which climaxed violently last year, began in 1975. That's because historians look back to see when low-level violence began, and name that as the starting point.

It's possible that future historians will look back at this time and say that the civil war began in 2010, even though no real civil war can begin for some years to come.

We can look to Les Misérables again for some insight. In the play, Marius is defeated in the uprising, and he sings "Empty Chairs at Empty Tables." But then he goes off and marries Cosette, and they live happily ever after.

But we know from history that didn't happen. Low-level violence occurred in France for years and decades, climaxing in the Paris Commune civil war in 1871, when tens of thousands of Parisians took up arms and brutally murdered each other. It was the utter insanity of the Paris Commune that caused Friedrich Nietzsche to say, "Insanity in individuals is something rare - but in groups, parties, nations and epochs, it is the rule."

Additional links

In a strongly worded televised speech on Monday, South Korean president Lee Myung-bak suspended trade with the North and demanded an apology for sinking the warship Cheonan. Tensions continue to grow. BBC

A new American intelligence analysis says that North Korean president Kim Jong-il personally ordered the torpedo assault that sank the South Korean warship Cheonan in order to help secure the succession of his youngest son. NY Times

One European city after another is on the verge of a major debt crisis. Guardian

Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism. But now Europeans are realizing that their social model is coming to an end. NY Times

A new computer program can compose stunningly beautiful, original works of classical music, raising the possibility that human composers will soon be obsolete. Slate. This is of personal interest to me because my late first cousin Yannis Xenakis did the foundational work in the 1950s, developing the mathematical algorithms for creating music by computer.

Pakistan's former president, Pervez Musharraf, says that he may return to Pakistan and run for President again. Dawn

As Israel begins military exercises near the Lebanon border, Prime Minister Benjamin Netanyahu has sent calming messages to Syria and Lebanon, saying that there's no intention of starting a war. Haaretz

15 ways to predict divorce. Daily Beast

(Comments: For reader comments, questions and discussion, see the 24-May-10 News -- Les Misérables of Thailand at a turning point thread of the Generational Dynamics forum. Comments may be posted anonymously.) (24-May-2010) Permanent Link
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23-May-10 News -- Some humor that isn't really very funny

Major offensive in Kandahar may be turning point in Afghanistan war

Barney Frank in 2005 discusses the real estate bubble

Earlier this week, Massachusetts congressman Barney Frank, head of the Financial Services Committee, appeared on CNBC, and bragged:

"I have always been critical of this effort to equate a decent home with homeownership. We should have done more to get affordable rental housing. My efforts have been towards affordable rental housing. I was very much in disagreement with this push into home ownership."

So the folks at CNBC dug out the following Barney Frank video from 2005:

This is very funny, except that it's not at all. I was writing about the housing bubble in 2004 (see "Greenspan uses circular reasoning on housing bubble"). I knew that there was a housing bubble, Alan Greenspan knew that there was a housing bubble, and other financial analysts did as well.

I just could never understand in 2005 why those politicians, journalists and analysts couldn't see that there was a housing bubble. And I still can't understand why they didn't see it.

Barney Frank's committee is investigating whether financial execs committed crimes by not knowing that the housing bubble would burst. Well, why doesn't he investigate himself? Why doesn't he investigate other politicians, Republicans and Democrats?

And here we have the CNBC article asking the following question:

"These conflicting statements raise the following question: Why should we believe Congress gets financial regulation right this time around when a guy who is unanimously lauded as extremely smart (whether you like him or not) can be so wrong about housing? And so revisionist of where he stood on the expansion of home ownership?"

Wow! Good question! But I could ask the experts at CNBC the same question: Why should we believe anything you say at CNBC, when you claim to have experts on your staff, and you change your opinion all the time?

At the end of 2006, I quoted one of CNBC's experts, a regular contributor, Jack Bouroudijian of the Brewer Investment Group, as saying the following:

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

In that article ( "Financial analysts gush at stock market's meteoric rise"), I wrote this: I have to tell you, dear reader, that I just never cease to be absolutely, totally astounded by these statements. This guy probably makes a few million dollars a year in salary, and probably just received another few million in year-end bonuses. And yet, his gushing is one of the stupidest statements I've ever heard. Though really I should hedge this last sentence by saying that I can't be sure, since I've been hearing so many incredibly stupid statements by high-paid financial consultants. It's almost beyond belief.

I get criticized for calling people stupid, as if I should play the game and pretend that they people aren't liars and crooks. These people were saying anything that would get them more advertisers, more clients, and more fat commissions. Truth was irrelevant. It's disgusting, and that's why the Barney Frank video isn't funny.

A 'hilarious' video by Max Keiser

Michael "Mish" Shedlock's column on Saturday refers us to the following video of Max Keiser's report on Russian Television. It's 25 minutes long, but you don't have to listen to more than a couple of minutes of it. Shedlock suggests listening to the first few minutes of it because it's so hilarious.

I did not find it hilarious. Like so many things I run into these days, I find it to be extremely depressing. It describes in some detail the shell game that's being played among the central banks in the US and European countries.

A number of years ago, when credit cards were first becoming more widely available, I saw the poster that read, "Can I pay my Master Card with my Visa?" That was very funny at the time. Ha, ha, ha. But now we have central banks doing exactly the same thing.

I just can't understand this. Why is this funny? Why don't ordinary investors, journalists and politicians see what a disaster this is?

The FlashCrash

One day three weeks ago, the Dow Industrials fell almost a thousand points in a few minutes, before partially recovering. The period has become known as the "FlashCrash."

Here's how Time Magazine portrayed the situation:

The FlashCrash <font size=-2>(Source: Time)</font>
The FlashCrash (Source: Time)

In an article a couple of years ago, I posted the following joke from 1930:

"Did you hear about the fellow who engaged a hotel room and the clerk asked him whether he wanted it for sleeping or jumping?"

"No -- but I heard there were two men who jumped hand-in-hand because they'd held a joint account!"

Additional links

The war in Afghanistan may have a major turning point this summer, as the Obama administration launches a "go for broke" offensive in Kandahar. Washington Post

The U.S. and South Korea may raise their state of military readiness as tension continues to grow, following the South's report naming the North as the perpetrator of the sinking of the Cheonan warship on March 26. Guardian

Japan's Prime Minister Yukio Hatoyama has apologized to the people of Okinawa for ditching his campaign promise to move the US Marine Corps' military base off of the island. Washington Post

Liam Fox, Britain's new Defense Secretary, rejects humanitarian goals for the war in Afghanistan. "We are not in Afghanistan for the sake of the education policy in a broken 13th-century country. We are there so the people of Britain and our global interests are not threatened." Times Online

(Comments: For reader comments, questions and discussion, see the 23-May-10 News -- Some humor that isn't really very funny thread of the Generational Dynamics forum. Comments may be posted anonymously.) (23-May-2010) Permanent Link
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22-May-10 News -- Germany approves its share of the euro bailout

Tempers flare in North and South Korea

Germany approves the $1 trillion euro bailout, amid controversy

On Friday, the German Bundestag (parliament) approved Germany's share of the $1 trillion bailout announced two weeks ago. There is a fair amount of bitterness among the German people towards the Greeks, who lied about their finances to get into the eurozone, and now are going to be paid a great deal of money earned by hardworking Germans. Thus, there was a great deal of bitter discussion in the Bundestag, according to the BBC.

There are also bitter disagreements within the eurozone countries, especially between Germany and France, according to the Independent.

The Germans are calling for a harsh overhaul of the eurozone's budgetary rules, including a new rule suspending a country for violating the budgetary constraints.

The French have a simpler solution, according to the article. They blame the instabilities within the eurozone on the fact that the Germans save their money and export their manufactured goods. So the French want the Germans to consume more and export less.

The French blame the size of the current crisis on Merkel's dithering during discussions on bailing out Greece. PressEurop claims that France is backed in their opposition to German policies by Italy, Spain and Portugal -- three countries in the PIIGS group, who may have to receive their own bailouts.

After a tumultuous week on the financial markets, there's a lot of discussion about whether the euro currency can survive. All the commentators I heard indicated that there will at least be many tumultuous weeks to come.

Tempers flare in South and North Korea after warship sinking accusations

A day after South Korea accused North Korea of being the culprit in the March 26 sinking of the warship Cheonan, tensions are rising on both sides of the border.

South Korean Defense Minister Kim Tae-young North Korea is quoted by VOA as saying, "Even in a boxing match, the fighters agree to wear gloves. North Korea has stepped over that limit and for that we will make it pay."

North Korea continued its threats of war if South Korea retaliates in any way. However, these threats of war are a sign of panic, according to an expert quoted by the article. North Korea never dreamed that the South would find the fragments of the torpedo that sank the warship.

The more I follow this situation, the more I believe that the North Koreans want to have a war. This is hardly rare in history, and it's the worst form of national self-delusion that a country can solve its problems by going to war. But North Korea's words and actions increasingly point in that direction.

Some people in the Generational Dynamics forum have been comparing the Korea situation today to the situation with Germany in the 1980s, prior to reunification. Korea's last crisis war was World War II, meaning that Korea today is deep into a generational Crisis era, making it very unlikely that Korea can be reunited without a war. Germany, by contrast, was in a generational Unraveling era when reunification occurred after the Berlin wall came down in 1989, with the senior people in all organizations being survivors of World War II, and readily willing to compromise difficult issues to achieve reunification. The two situations are completely different, and not really comparable at all.

Additional links

Tensions are also growing in the Mideast. Hizbollah militants are preparing for a possible confrontation with the Israeli Defense Forces (IDF), who are beginning week-long training exercises on Sunday, near the Lebanon border. So far it's nothing but rhetoric. Haaretz

From Gaza to Golan, IDF soldiers are being trained for war Haaretz

Some intelligence sources claim that the Obama administration is about to deploy thousands of additional American troops to the Mediterranean and Persian Gulf regions, challenging Iran. Debka

Pakistan blocked internet access to Facebook, in retaliation for one Facebook member's invitation to draw pictures of Mohammed. But editorial writers in Pakistan are ridiculing the government move. Dawn

Teenage girls send and receive far more text messages than boys. Duh. A teenage girl will typically send and receive 80 texts a day. For a typical boy, the number is 30. Pew Research

Go to and click on the Google logo, and for a day or two you'll be able to play a traditional game of PacMan for free, celebrating the game's 30th anniversary. CNN

(Comments: For reader comments, questions and discussion, see the 22-May-10 News -- Germany approves its share of the euro bailout thread of the Generational Dynamics forum. Comments may be posted anonymously.) (22-May-2010) Permanent Link
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21-May-10 News -- S. Korea accuses N. Korea of sinking warship

Market selloff confuses financial analysts.

South Korea accuses North Korea of sinking warship Cheonan

The South Korean warship Cheonan was sunk on March 26 by an explosion, killing 46. As we've been reporting for weeks, South Korean President Lee Myung-Bak has carefully avoided accusing the North of being responsible for the explosion, for fear that merely saying so would also compel him to a declaration of war.

But now that time has ended. On Thursday, South Korea's Joint Civilian-Military Investigation Group (JIG) released a report citing "overwhelming evidence" that the Cheonan was sunk by a North Korean torpedo. And the dramatic conclusion was reached not by the South Koreans alone, but including experts from the United States, Australia, Britain and Sweden.

As we've described in the past, the evidence initially pointed to a torpedo that exploded BELOW the ship, creating a shock wave that split the the ship in two. A torpedo shock wave, it turns out, is far more devastating than a direct hit by a torpedo.

Here are some of the conclusions, as reported by BBC (or full report PDF):

"A shockwave and bubble effect caused significant upward bending of the CVK (Center Vertical Keel), compared to its original state, and shell plate was steeply bent, with some parts of the ship fragmented.

On the main deck, fracture occurred around the large openings used for maintenance of equipment in the gas turbine room and significant upward deformation is present on the port side. Also, the bulkhead of the gas turbine room was significantly damaged and deformed.

As for conclusive evidence that can corroborate the use of a torpedo, we have collected propulsion parts, including propulsion motor with propellers and a steering section from the site of the sinking.

The evidence matched in size and shape with the specifications on the drawing presented in introductory materials provided to foreign countries by North Korea for export purposes...

The marking in Hangul, which reads ["No. 1" in English], found inside the end of the propulsion section, is consistent with the marking of a previously obtained North Korean torpedo. The above evidence allowed the JIG to confirm that the recovered parts were made in North Korea."

Apparently the final confirmation came during the last week, when the South Koreans trawled the sea floor beneath the site of the explosion and were able to recover torpedo parts that could be unambiguously identified as North Korean.

Now that President Lee has arranged for almost two months of investigation to give tempers time to cool, we're about to see if tempers have in fact cooled.

As expected, the North Koreans are humiliated by this accusation, and they're responding accordingly. A rare public statement from North Korea's high level National Defense Commission said that the investigation was "a sheer fabrication orchestrated by the group of traitors in a deliberate and brigandish manner to achieve certain political and military aims," according to S. Korea's JoongAng news service.

The North Koreans also implied that any retaliatory action would be considered an act of war. "The world will clearly see what a dear price the group of traitors will have to pay for the clumsy 'conspiratorial farce' and 'charade' concocted to stifle compatriots."

According to the article, analysts in Seoul considers these threats to be mostly rhetorical, since no pre-emptive strike is threatened.

American State Department spokesman P.J. Crowley called the attack an "unprovoked and unwarranted act," according to the Washington Post, and that "clearly this was a serious provocation by North Korea and there will definitely be consequences because of what North Korea has done."

China, on the other hand, says that it has "noted" the investigation results, and and is "calling on all parties to exercise calmness and restraint over relevant issues of the sinking," according to Xinhua.

The most likely scenario seems to be that the U.S. will call on the United Nations Security Council to condemn the North Koreans and to impose new sanctions. The Chinese will then have to decide whether to veto such a motion. Also, the United States could announce unilateral sanctions. However, such sanctions would be one of the provocations that the North Koreans threatened to start a war over.

North Korea's biggest backer is China, and they'll play a crucial role in mediating the crisis, to prevent it from spiraling out of control.

However, the South Koreans are not going to allow anything like this to happen again, and tensions are very high. A miscalculation on any side could lead to a military confrontation.

Market selloff stuns pundits

Thursday's big market selloff seems to have put a lot of pundits into a state of shock. The recent narrative has been first that Greece's economy is too tiny for a default to affect the American economy. Now the narrative is that, despite Merkel's apocalyptic speech on Wednesday, Europe's economy will easily survive the current crisis, without having too much effect on the US economy. The greater narrative is that we've learned a great lesson from the Lehman failure, and that now we know exactly how to prevent any further crisis.

From the point of view of Generational Dynamics, we've learned absolutely nothing from the financial crisis of the past three years, and that all the abuses that led to it are still being practiced in even greater form.

A major exception of the general narrative is famous bear market strategist David Tice. He was on Bloomberg TV for a long time on Thursday afternoon, and he's predicting a crash, based on Von Mises theory and the Austrian school. I found it interesting that he predicted that the "fair value" for the S&P is around 500, that the market will overshoot and fall to 400. Those figures are similar to mine, and I wonder how he arrived at them. Perhaps he's read my article "How to compute the 'real value' of the stock market," or perhaps he arrived at the figures independently the same way I did.

Generational Dynamics predicts that a panic and stock market crash must come at some point, by the Law of Mean Reversion, because the stock market has been historically overpriced since 1995.

Additional links

Tens of thousands of workers protested non-violently in Athens on Thursday, protesting austerity measures, as unions conducted a nationwide strike. CS Monitor

The German Bundestag will vote on Friday whether to approve the $1 trillion eurozone bailout. Bloomberg

German chancellor Angela Merkel is "criminally incompetent" for surprising everyone, including her allies, with her unexpected announcement of banning naked short sales. French Finance Minister Christine Lagarde says that France will not go along with the German decision. EuroIntelligence

Jobless claims rise by largest amount in 3 months. AP

"Synthia" is the name give to a cell of artificial life created in the laboratory from synthetic DNA. J. Craig Venter, who headed the team creating the cell, says, "This takes us across that border, into a new world." Times Online

(Comments: For reader comments, questions and discussion, see the 21-May-10 News -- S. Korea accuses N. Korea of sinking warship thread of the Generational Dynamics forum. Comments may be posted anonymously.) (21-May-2010) Permanent Link
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20-May-10 News -- Angela Merkel roils markets with demands

Massive anti-austerity protests in Romania

Angela Merkel gives apocalyptic speech on euro

On Wednesday, German Chancellor Angela Merkel for a radical overhaul of Europes financial system, following the rules established by Germany itself. Merkel's speech appeared to be directed at France and other countries, especially southern European countries, the vigorously fought for the $1 trillion bailout a couple of weeks ago.

In a speech to the German parliament, Merkel said the following, as quoted by AFP:

"The current crisis facing the euro is the biggest test Europe has faced in decades, even since the Treaty of Rome was signed in 1957.

This test is existential and it must be overcome ... if the euro fails, then Europe fails.

The euro is in danger. If we do not avert this danger, then the consequences are incalculable and the consequences for the whole of Europe are also incalculable.

We need a comprehensive overhaul of the Stability and Growth Pact, [the rules stating that EU countries should keep budget deficits below three percent of gross domestic product (GDP) and debt below 60 percent of GDP.]

The rules must be geared to the strongest, not to the weakest ... our (German) stability culture is tried and tested."

Merkel also confirmed that Germany is unilaterally implementing a ban on naked short selling of government bonds (see below).

The result was that the euro fell to new lows on Wednesday, and stock markets in Europe and New York continued to fall.

Merkel's speech prompted a great deal of discussion on Wednesday on the question of whether the euro was going to collapse. Some people pointed to increasing divisions between the eurozone countries as evidence of a possible collapse, while others said that any talk of collapse was crazy talk.

The context for this discussion is that Europe's financial markets appeared to be in a panic a month or so ago. The $1 trillion bailout appears to have stopped the panic in its tracks, but the situation is still extremely volatile, and a sharp market collapse is still a possibility. Web site readers should continue to watch the markets warily.

Germany bans naked short selling

If you think that the price of a stock is going to go up, then you buy the stock ("go long"). If the price of the stock goes up, then you make money.

If you think that the price of a stock is going to go down, then you can "go short" as follows: Borrow some shares of the stock, usually from your broker, for a fixed period of time; sell the stock at current market price; after the fixed period of time, purchase new shares of the stock, and return them to the person you borrowed them from in the first place. If the price of the stock has gone down, then you've made money.

Naked short selling occurs when you arrange with your broker to sell shares of stock that you don't actually have. Your broker sells the non-existent stock to a buyer who won't actually try to take possession of the shares. At the end of the fixed period of time, all accounts are settled in exactly the same way as above, except that no stock shares were actually involved.

For more information, see my 2008 article, "SEC blames stock market problems on 'false rumors' and 'naked short selling.'"

The article referenced in the last paragraph also shows that blaming naked short selling doesn't do much good.

What Germany has done is to ban naked short selling of government bonds, such as those from Greece and Portugal that appeared to be crashing two weeks ago. The theory is that the crashing behavior was caused by speculators using naked short selling, without even owning any of the bonds in question.

The German ban has increased the volatility of Europe's financial markets, according to FT Alphaville:

"After a dull week start to the week it was back to the volatility we have become familiar with. Again the sovereign world was the source, though the trigger in this case was somewhat unexpected. Bafin, the German regulator, announced a ban on naked CDS referencing eurozone countries, as well as naked short sales of eurozone sovereign debt and equities of certain German financial institutions. The unilateral action took the market by surprise this morning and saw some unusual spread movements."

Once again, I repeat the warning that readers should be very wary of the markets until they settle down again for a while.

Generational Dynamics predicts that a panic and stock market crash must come at some point, by the Law of Mean Reversion, because the stock market has been historically overpriced since 1995. (See "How to compute the 'real value' of the stock market.") Readers should watch very carefully to see if the apparent panic takes off.

Additional links

Tens of thousands of Romanians marched in the streets of Bucharest on Wednesday, to protest austerity measures that will cut wages by 25% and pensions by 15% for public workers. Unions have called a general strike for May 31. Deutsche Welle

Bangkok Thailand is under curfew after the army assaulted the "red shirt" protestors with live ammunition, and the radical protestors retaliated by burning down shopping centers and the stock exchange. At least six people died on Wednesday. BBC

The French cabinet approved a bill banning women from wearing a full Islamic veil. French president Nicolas Sarkozy said, "We are an old country anchored in a certain idea of how to live together. A full veil which completely hides the face is an attack on those values, which for us are so fundamental. Citizenship has to be lived with an uncovered face. There can therefore be absolutely no solution other than a ban in all public places." Guardian

Ethnic violence is spreading in Jalalabad, Kyrgyzstan, and a state of emergency has been declared, as clashes grow between Uzbek and Kyrgyz people. Jalalabad is in the volatile Fergana Valley, where the countries of Kyrgyzstan and Uzbekistan meet. Reuters

(Comments: For reader comments, questions and discussion, see the 20-May-10 News -- Angela Merkel roils markets with demands thread of the Generational Dynamics forum. Comments may be posted anonymously.) (20-May-2010) Permanent Link
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19-May-10 News -- Maoist terrorism puts India on high alert

Euro currency at lowest value in four years

India on high alert after Maoist (Naxalite) terrorist attack

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)

Security forces have been put on high alert after Maoist (Naxalite) terrorists blew up a passenger bus in Dantewada district on Monday, killing at least 44 people. This follows an April attack in the same district that killed 75 people. (See "8-Apr-10 News -- India reacts to Tuesday's Maoist attack.")

The Times of India reports that the Maoists have called a two-day bandh (general strike) for Tuesday and Wednesday, and have called for further violence against anyone not honoring the strike.

Security forces are particularly concerned about a terrorist attack on the railways and buses, an easy target for terrorists. As a result, normal life has been "paralyzed" in some regions, according to Times of India. Many trains and buses have been canceled, and others have been diverted around the regions controlled by the Maoists. Many are running at half-speed, with robot cars leading the way to detect hidden bombs.

The Naxalite 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."

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.

India's government is split over how to deal with the situation, according to the London Times. Some factions are advocating the use of air strikes on Maoist camps. Other factions are opposed to the use of air strikes on citizens of India.

In my opinion, this appears to be like so many situations in the world today. The government will ignore the problem as much as possible, and delay doing anything about the problem for as long as possible, until something happens that forces action. At that time, the government will overreact.

Euro falls to lowest point in four years

The euro currency fell to $1.2235, its lowest point in four years against the dollar (which means that the dollar is the strongest it's been against the euro in four years), according to Bloomberg. The euro also fell against the yen.

Stock markets fell in Asia and on Wall Street, but markets were generally calm on Tuesday. There's still a great deal of tension among investors, however, so the possibility of a sudden fall or even a crash cannot be eliminated.

Readers should continue to be extremely cautious in the next few days.

Additional links

On Thursday, South Korea will definitely accuse the North Koreans of launching the torpedo that caused the explosion that sank the warship Cheonan on March 26, killing 46, according to unnamed officials. This is sure to result in a great deal of vitriolic rhetoric from the North Koreans, but whether it will go farther than that remains to be seen. NY Times

Thailand's army is pushing its assault on the anti-government protest camp in central Bangkok. VOA

U.S. voter anger is on display in primary elections being held around the country on Tuesday. Turkish Press/AFP

(Comments: For reader comments, questions and discussion, see the 19-May-10 News -- Maoist terrorism puts India on high alert thread of the Generational Dynamics forum. Comments may be posted anonymously.) (19-May-2010) Permanent Link
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18-May-10 News -- Korean tensions grow prior to Cheonan announcement

Iran may have snookered the West in its nuclear deal with Turkey and Brazil

Korean tensions grow as Thursday's Cheonan announcement approaches

The South Korean warship Cheonan was sunk on March 26 by an explosion, killing 46. For a long time, South Korean President Lee Myung-Bak has carefully avoided accusing the North of being responsible for the explosion, for fear that merely saying so would also compel him to a declaration of war.

However, it now appears that an international forensic investigation involving the South Koreans, the US and the Europeans has been completed, and the report to be released on Thursday will say that the explosion was almost certainly caused by a North Korean missile.

Many South Koreans are furious about this attack, but Lee has stalled for almost two months, allowing for tempers to cool. But he's also vowed "clear and resolute measures" against the responsible parties.

Some non-military measures may already have begun. The South announced on Monday that they would suspend funding certain joint activities with the North, according to AFP. Media reports say the South is also considering cutting trade with the North and the defence ministry has said it may resume anti-Pyongyang loudspeaker broadcasts across the border.

We've been reporting on developments in this situation almost on a daily basis, especially as regards the role of China. The Chinese are caught in the middle of this situation, since they're North Korea's benefactor and because China's mediation is the only hope, if there is any, of avoiding all out war. War might well be the outcome, for example, if China simply sides with the North Koreans.

Still, it comes as a surprise on Monday that South Korea's JoongAng news service is reporting that China has rebuffed a special aid request that N. Korean president Kim Jong-il personally made during a trip to Beijing two weeks ago.

The article quotes an unidentified source as saying that Kim cut short his trip to China:

"At the luncheon between Chinese Premier Wen Jiabao and Kim on May 6, the Chinese government informed the North that China will not provide aid outside the framework of the United Nations Security Council sanctions against Pyongyang. After Beijing’s position was explained, Kim shortened his schedule in China."

The article quotes a Chinese analyst in Beijing as saying that Kim's visit "highlights a distinctive rift between Beijing and Pyongyang."

The article does not give a motivation for Beijing's refusal, but my own guess would be the obvious one: That Beijing doesn't want to provoke South Korea into military action against the North, by appearing to reward Kim for the Cheonan sinking.

It's widely believed that North Korea is headed for a major crisis, as Kim Jong-il is increasingly frail and without a clear successor. A collapse of the North Korean government would give China the opportunity to annex North Korea, to take control of its rich mines and transport systems.

North and South Korea are in generational Crisis eras, and it would take very little to trigger a war between them. North Korea seems almost like it WANTS a war. The Cheonan incident is one example. Another is the provocative act of two North Korean patrol boats entering disputed South Korean waters on Saturday.

From the point of view of Generational Dynamics, it would not be surprising at all if the North Korean people wanted a war. This would be the same fantasy self-denial that led the American Confederate South to celebrate when the American Civil War began, or that led the Japanese to bomb Pearl Harbor. It's the worst form of self-delusion, and it's not uncommon in history, especially during generational Crisis eras.

Assuming that Thursday's announcement blames the North for the Cheonan sinking, as analysts expect that it will, it will be a further tremendous humiliation for Kim Jong-il, especially after being rebuffed by China. It will not make Kim any less provocative; to the contrary, it will probably provoke him into taking even more dangerous actions.

Iran may have snookered the West, with the help of Turkey and Brazil

For years, through the Bush and Obama administrations, the US has been leading the West in trying to force Iran to shut down its uranium enrichment operations. Enriched uranium can be used to build nuclear weapons, but Iran claims that it wants the enriched uranium only for peaceful purposes, especially for producing electricity and treating cancer.

And so in 2009, Russia, France and the West made a very clever proposal to the Iranians. Iran would ship its low-enriched uranium to France. France would enrich it and return it to Iran a few months later. Iran could then use it for producing electricity, but since the United Nations would be keeping track of it through its IAEA organization, Iran would not be able to build a bomb.

Now Iran has come up with a very clever response. At a meeting in Tehran, Iranian president Mahmoud Ahmadinejad made a deal with Brazil's President Luiz Inácio Lula da Silva and Turkish Prime Minister Recep Tayyip Erdogan to do almost the same kind of thing that the West proposed last year, according to the London Times.

Under the agreement, Iran will ship some low-enriched uranium to Turkey, and Turkey will ship back highly enriched uranium provided by Brazil. So the West is completely shut out of the deal. Furthermore, the deal won't prevent Iran from continuing to enrich uranium.

According to the article, Lula has completely "boxed in" President Obama with this proposal, because Obama cannot reject a proposal similar to the one that he himself offered last year. Lula hailed the deal as a "victory for diplomacy," as he joined hands with Ahmadinejad and Erdogan in a "show of non-aligned triumphalism."

Iran's very clever response has stymied the Obama administration, as it seeks to convince the United Nations Security Council to impose economic sanctions on Iran for violating its obligations under the Nuclear Nonproliferation Treaty that it has signed. According to the Washington Post, the deal will give China a new excuse to veto any UN sanctions.

The Iran nuclear situation is becoming increasingly dangerous for many reasons, one of which is the possibility that Israel will make a military strike on Iran to take out Iran's nuclear enrichment plants. Iran would counterstrike, and a larger war could result.

And as I've said many times (see, for example, "China 'betrays' Iran, as internal problems in both countries mount"), when all is said and done, I expect Iran to be on the side of America and the West, including Israel, when forced to make a choice in the coming Clash of Civilizations world war.

Additional links

A recent poll shows that popular support for the Spanish government has fallen sharply, following last week's announcement by Prime Minister José Luis Rodríguez Zapatero of harsh austerity measures. Financial Times

International purchases of US Treasuries by foreigners, including China, soared in March. Market Watch

More homeowners are choosing "strategic defaults": when their houses are worth less than their mortgages, they stop making payments and let the bank foreclose. New figures show that this is becoming a much larger problem. Market Watch

Men lose the ability to sleep soundly as they grow older, because of loss of testosterone. Telegraph

Why does anything exist at all? Christian scholars will say that it's for the glorification of God, but any philosophy student will tell you that that answer only "kicks the can down the road," since it doesn't answer the question of why God exists. Now scientists are saying that the key to understanding existence is the newly discovered B-meson particle, but it turns out that only tells us why we're not made of anti-matter. NY Times

When you live in Shanghai, it's very stylish to wear Western-style pajamas in public. But now, with the 2010 World Expo in Shanghai, "pajama policemen" are patrolling neighborhoods, telling pajama wearers to go home and change. NY Times

On Tuesday morning in Europe, the euro fell to its lowest value against the dollar since April 2006. However, other analysts are saying that the sharp fall in the euro makes it likely that it will bounce back up. Bloomberg

(Comments: For reader comments, questions and discussion, see the 18-May-10 News -- Korean tensions grow prior to Cheonan announcement thread of the Generational Dynamics forum. Comments may be posted anonymously.) (18-May-2010) Permanent Link
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17-May-10 News -- Markets open Monday amid high tension

Palestinian vs Israeli 'proximity talks' resume for a 'final agreement'

Tensions are high as markets open on Monday

As I'm writing this on Sunday evening, the Dow Industrials futures are down 50 points, Asian markets are down over 2%, and the NY Times web site has just posted an article titled, "Fears Intensify That Euro Crisis Could Snowball."

As we wrote in the news summary two days ago, there are a lot of signs right now that a panic is coming soon. (See "15-May-10 News -- European financial instability returns.") Perhaps the panic will fizzle, but readers should watch the markets very closely in the next few days. The global financial system is extremely dysfunctional.

Palestinian / Israeli 'proximity talks' resume for a 'final agreement'

George Mitchell, the Obama administration's envoy to the Mideast, is returning this week to resume serving as mediator between the Palestinians and Israelis in "proximity talks" -- negotiations that take place indirectly (through Mitchell), rather than face to face.

There's an increasing feeling of tension in the Mideast that these talks are the last ones that will be held. Chief Palestinian negotiator Saeb Erekat is quoted by Ynet news on Sunday as saying:

"We, as Palestinians, decided to give Mitchell, [Secretary of State Hillary] Clinton and Obama a chance.

I talk with Mitchell about the core issues," he continued. "If [Israeli Prime Minister Benjamin] Netanyahu wants to talk to the mirror, he can. If he wants to talk about (soccer teams) Hapoel Tel Aviv and Maccabi Haifa, he can. It's nothing to do with me. I talk with Mitchell.

We will not agree to a military presence in the Jordan Valley, we will not agree to (Israeli) control of water, we will not agree to settlements there or Israeli industry there. Not for the sake of security. We agree to have a third party investigate the issue.

There's no need for negotiations. There is a need for an agreement. All the alternatives are on the table. This is the moment of truth. We are all experiencing birth pangs. We need leaders ready to make sacrifices. My options are two states according to the 67 borders, with territory exchanges and security arrangements. If you've come to the conclusions that you can't offer this because you don't have anyone to rely on – I'm not afraid. ...

[Regarding the Netanyahu government] You tie up my hands and feet and throw me into the sea. Then you tell me I don't know how to swim. That's how the Israeli government behaves today.

I negotiate with you because in my opinion, most Jews and Arabs want an agreement, and the alternative, the conflict, is too hard. ...

In my generation, this can be achieved through negotiation. Don't miss the opportunity… The negotiations are over. The time has come to decide. Not interim decisions, not future decisions, not past decisions. A final agreement."

Just reading that list of demands, you know that none of them are going to happen. Israel will not return to pre-1967 borders and will not give up control of water. And the Israelis have reaffirmed in the last few days that they will not stop building Jewish settlements in the West Bank. The Israeli people will not agree to these concessions.

Nor will Hamas nor the Palestinians of the Gaza strip agree to any concessions. As I've pointed out many times, the average age of an inhabitant of Gaza is 16, meaning that Gaza is populated by children with guns and missiles, children who consider people like Saeb Erekat and George Mitchell to be irrelevant old fogies.

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?") This was my first major international prediction, based on the Generational Dynamics methodology, and it's been correct so far. Since then, 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 January, 2009.

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.

Thus, it will be very interesting to watch these new "proximity talks" to see what will happen. George Mitchell will be hoping to come up with some magic formula that everyone will agree to. What will happen if the talks don't succeed? Will everyone just go home and promise to try again next year? Or will there be a new Mideast war in 2010, possibly as early as this summer? We'll be watching closely.

CNN's Fareed Zakaria admits to bubbles and to al-Qaeda in Iraq

I like Fareed Zakaria's show on CNN because of his guests. On Sunday, for example, he interviewed Greek PM George Papandreou in one segement, and had a panel that included Larry Summers and IMF director Dominique Strauss-Kahn in another segment.

The main thing that startled me about Sunday's show was when he described the bombing of the U.N. headquarters building in Baghdad in 2003 this way, according to CNN's transcript: "Abu Musab al-Zarqawi, the head of al Qaeda in Iraq, had ordered an attack on the U.N. headquarters..."

I like to keep track of these people who seem to have experienced epiphanies, and change their mind about thing. Zakaria has a very grating way of being ostentatiously super-positive about things, while exhibiting his toothy smile. In this show, for example, he began by saying, "A big week. Hamid Karzai was received in style in Washington, finally. Europe got its act together and rescued Greece and stock markets worldwide rose in relief." I'm not sure that he lived through the same week that I did, but that's another matter.

Zakaria's super-optimism is actually new-found. He was not super-optimistic during the Bush administration. In 2006, I quoted Zakaria in the following article: "Learning-disabled journalists and politicians continue to predict Iraq civil war." Here's what Zakaria said at the time:

"If you look at the last 3-4 months, it's absolutely clear that a civil war dynamic has set in. This is happening. ... The trend is moving in the wrong direction on every issue that relates to a building civil war."

Zakaria had been predicting a civil war in Iraq for years, and he never seemed to get it right. In that article, I referred to him and other mainstream journalists as "learning impaired," because they never seemed to learn. In those days, it was anathema among mainstream journalists to utter the words "al-Qaeda in Iraq," because to do so would be to admit that, well, al-Qaeda was in Iraq, and that what was going on wasn't a civil war caused by the evil Bush administration.

So now, apparently, Zakaria and other journalists finally have learned.

Long-time readers of this web site know that I also wrote about the attack on U.N. headquarters, in the article "Terrorist suicide bombings in Iraq may backfire against terrorists." This article is personally interesting to me because it was the second major international prediction that I made as I was developing Generational Dynamics, and as I read that article today, the predictions look pretty good. (See the article "Brookings Institution does a full reversal on Iraq war." The first major international prediction was that the Mideast Roadmap to Peace would fail.)

Mainstream bloggers and journalists like Zakaria allow their reporting to be controlled by their ideology. More generally, Zakaria and other mainstream journalists and bloggers just make up and report any "facts" they like to support their ideologies. Zakaria didn't like Bush, so he chose to be pessimistic about Bush's policies; Zakaria loves Obama, so he chooses to be optimistic about Obama's policies. As Groucho Marx once said, "Those are my principles, and if you don’t like them - well I have others."

Zakaria also made the following statement in his Sunday show:

"[W]hen you look at this crisis and step back, a lot of people would argue one fundamental driver here was the very low interest rates that fueled a lot of bubbles. The cost of capital really collapsed between 2004 and 2007 and made people do stupid things in all kinds of areas."

I've been reading and hearing so much about bubbles these days, and I wrote a lot about the real estate and credit bubbles between 2004 and 2007, when mainstream financial analysts denied they existed.

So, once again, I'm pointing out that mainstream journalists and analysts were consistently wrong in the past. By contrast, I do not make up facts. I apply the Generational Dynamics forecasting methodology relentlessly, and report to you the forecasts and predictions, whether I like them or not. As far as I know, there is no web site or analyst or journalist in the world with anything remotely close to the predictive success of this web site, for the last 8 years. Assuming that's true (and I believe it is), then this is the only web site in the world that will tell you what's really going on in the world. That was true in the past, and it's still true today.

I've actually passed a major milestone this year: Starting in January, I've been posting daily news summaries. I couldn't possibly have accomplished that in the past, because I hadn't yet developed enough generational theory, and because there were a lot of countries that I hadn't analyzed. But gradually over the years I've developed a kind of "inventory" of information about histories and generational timelines of dozens of countries, and I'm able to provide generational interpretations of various international events fairly quickly, without having to do too much additional research. I only wish I had more time to organize all the information in the "inventory" into some kind of database, which would be incredibly valuable for either governmental or commercial purposes. Well, maybe some day.

I started doing these daily news summarizes almost as a whim. I was sitting at my computer on January 6, and, almost without thinking, my fingers took control and typed, "Dear Reader, I'm going to try this for a while and see if it works for me. Ideally I'll produce a news summary every day, but that's probably unrealistic. I'll try to do it as often as possible."

Somewhat to my surprise, I've actually done this every day for over four months now (with one day's exception when I was out of town). It's been exhausting, but it's also been fun. I never cease to be astonished about how accurate the generational methodology is turning out to be. And I'm telling you again, Dear Reader, these predictions don't come from me; they come from the methodology. So, when I say that there won't be a civil war in Thailand, even though most of the mainstream media is saying the country is close to civil war, then you can take that to the bank.

Additional links

On Saturday, Palestinians commemorated the creation of the state of Israel with Al-Naqba, or "Catastrophe Day." VOA

With tensions high because of the Cheonan warship sinking, there was a brief naval confrontation on Saturday night in South Korean warters between North Korean patrol boats and South Korean naval ships. Taipai Times

Bangkok, Thailand, entered a fourth day of gunfire and explosions that have killed 30 civilians, as the army attempts to disperse the "Red Shirt" protestors. AP

A robot called "I-Fairy" is performing wedding ceremonies in Tokyo. CBS News

Women who marry younger husbands tend to die more quickly. Telegraph

(Comments: For reader comments, questions and discussion, see the 17-May-10 News -- Markets open Monday amid high tension thread of the Generational Dynamics forum. Comments may be posted anonymously.) (17-May-2010) Permanent Link
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16-May-10 News -- Thailand's Prime Minister says "no turning back"

China continues its aggressive plans for a Pacific naval war

Thailand's PM Abhisit orders army to end the Bangkok protests

At least 24 people have been killed and 187 people injured on Saturday, as Thailand's army closed in to disperse the protestors that have forced the closedown of the boutique shopping center in downtown Bangkok for several weeks.

Prime Minister Abhisit Vejjajiva has been under enormous political pressure to call in the army to disperse the protestors, and on Friday he apparently did just that.

On Saturday, Abhisit made a live televised address to the nation. The Bangkok Post quotes him as follows:

"As long as the red shirt protest continues, armed terrorists will remain and hurt people and authorities. Risks and violence will escalate. I insist that ending the protest is the only way to prevent losses. ....

We cannot allow unlawful elements to take Bangkok hostage. We will not allow an armed group unhappy with the government to attack and hurt authorities. There is no turning back in our efforts to maintain a legal state.

"Losses will have to be endured. It is the only way to righteousness."

As with so many other stories we report about on this web site, if you can mentally put aside the bloodshed, or imagine that this is taking place on another planet, then it's fascinating to watch this event unfold from the point of view of Generational Dynamics.

Even in the heat of the moment, this statement by Abhisit is remarkably defensive. But after this whole thing is all over, people are going to look back and wonder why he had to order the army to kill dozens of unarmed Thai citizens. There's something about an army killing its own citizens that horrifies people.

Let's compare this situation to the current major news story in America of Mexican immigrants in Arizona. There's a great deal of political debate today over how far the police should be allowed to go in detaining, questionsing and deporting illegal aliens. But the thing I would want to point out is that 10-20 years ago, there wouldn't even be a debate. The Arizona law being debated today would be completely unacceptable. And recall that in 1986, under the Reagan administration, many illegal aliens were offered amnesty, something that would be political anathema today. This illustrates how the public mood changes as a country goes through generational eras -- from Awakening to Unraveling to the Crisis era that we're in today.

(For information about generational eras, see "Basics of Generational Dynamics.")

But Thailand today is on the cusp of an Awakening era, transitioning into an Unraveling era, where America was around 1980. And so right now, with the red shirt protest continuing for over two months, and costing the country a great deal of money in terms of shopping and tourism, people will be willing to tolerate some violence to end the protests. But when it's all over, there's going to be a backlash against Abhisit, and he may well have to resign because of it. That would be ironic, because that's exactly the outcome that the protestors want today.

Still, we can only speculate what "when it's all over" is going to mean. The government would like to see the red-shirted protestors go back to their farms and servant positions, so that the Thai-Chinese élite can go back to their shopping. But it's hard to see how the protestors will simply accede to that wish, after so much blood has already been spilt.

The protest leader Jatuporn Prompan is quoted by the Guardian as saying, "The current situation is almost full civil war. I am not sure how this conflict will end."

One thing we can be sure of -- Generational Dynamics assures us that the conflict will NOT become a full civil war. It will be fascinating to watch and see how it actually unfolds.

Thailand's widely respected King Bhumibol Adulyadej has been able to soothe previous internal ethnic conflicts by mediation. But he's losing influence because of his age (82), and because the red-shirts consider him to be part of the elite, according to the NY Times.

Additional links

China is continuing its aggressive development of naval weapons, including missiles specifically designed to disable or destroy American aircraft carriers, in order to gain hegemony over the entire Pacific region. The Diplomat

On Thursday, South Korea will issue a statement accusing the North Koreans of having sunk the warship Cheonan on March 26. Yonhap. At a Saturday meeting of foreign ministers from China, Japan and South Korea, China urged "calm and restraint" in the Cheonan incident. Xinhua

To crack down on rampant tax evasion, Greek authorities are making public a list of 57 Athens doctors who they believe are guilty of tax evasion. NY Times

Republicans are introducing legislation to prevent America from helping the European bailout through the International Monetary Fund (IMF). I guess they forgot about China bailing out the United States. Politico

(Comments: For reader comments, questions and discussion, see the 16-May-10 News -- Thailand's Prime Minister says 'no turning back' thread of the Generational Dynamics forum. Comments may be posted anonymously.) (16-May-2010) Permanent Link
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15-May-10 News -- European financial instability returns

Bangkok, Thailand, has turned into a battlefield.

European financial instability threatens global panic

Let's put this into context. Starting several weeks ago, I said we were in the midst of a panic that was growing and spreading. This observation was based on price changes, similar to the ones shown on the following graph provided on Friday by FT Alphaville:

CDS prices for European debt, September 2009 to present <font face=Arial size=-2>(Source:</font>
CDS prices for European debt, September 2009 to present (Source:

Recall that a credit default swap (CDS) is a kind of insurance policy on debt that pays off when the underlying debt defaults. When CDS prices rise, it means that investors are increasingly afraid that the underlying debts will default.

Prior to last weekend, CDS prices were skyrocketing, as you can see from the above graph. It appeared that the entire European financial system was close to collapse. Furthermore, this was not a sudden thing; CDS prices for Greek and Spanish debt had been rising for a while, and it seemed clear that the rise would result in a full-scale bond panic.

Then came last weekend's super-nuclear $1 trillion bailout of European financials. The European Central Bank (ECB), with help from the American Federal Reserve (Fed), and other central banks, would pour liquidity into the European financial system and prevent bond debt from defaulting.

Since then, Greek and Spanish bond CDS prices have moderated, as would be expected, given the guarantees provided by the ECB.

The above graph shows the CDS prices for European bonds, issued in Brussels. This represents debt of the eurozone, rather than debt of an individual country, and it shows that the problems of the individual countries have now been transferred to the eurozone as a whole.

The graph shows that CDS prices fell sharply after last weekend's announcement. The bailout appears to have stopped the global panic that we discussed in its tracks.

But on Friday, CDS prices have begun to rise again. This is what we have to watch. If this graph levels off, then it may be investors are not afraid of a euro default; but if this graph rises again on Monday, then it may mean that the euphoria (or "euro-phoria") of last weekend's bailout has worn off, and the global panic is continuing from where it left off last week.

This comes after a full week of very gloomy news following the bailout. I've read and heard many commentaries, but I do not believe that I've seen or heard a single financial pundit or expert who claims that the bailout solved any problems in the long run. Every commentary used phrases like "postponed the problem," or "kicked the can down the road," or "simply moved money from one pocket to another," or "did not solve Europe's underlying debt problems." Every commentary said that the bailout only postponed the problem, some claiming it was for six months, some for 12 months, and some for 18 months.

So the issue that has to be assessed is whether the bailout bought only a couple of weeks, rather than a few months.

In fact, there are a number of reasons to believe that the panic resumed in full force on Friday, according to The Telegraph:

A lot of commentary has been very harsh. Most notable was Obama economics advisor and former Fed Chairman Paul Volcker, who was quoted by Bloomberg as saying, "You have the great problem of a potential disintegration of the euro. The essential element of discipline in economic policy and in fiscal policy that was hoped for [has] so far not been rewarded in some countries."

The talk about euro "disintegration" has been widely quoted. The WSJ adds that "Growing doubts about the viability of the euro-zone rescue package, and worries that it will stymie economic growth in the region, will likely continue to weigh on the euro next week."

Generational Dynamics predicts that a panic and stock market crash must come at some point, by the Law of Mean Reversion, because the stock market has been historically overpriced since 1995. (See "How to compute the 'real value' of the stock market.") Readers should watch very carefully to see if the apparent panic fizzles next week or takes off.

Some comments on the stock market selloff

The following is the response of of Michael Aronstein, Oscar Gruss & Son, being interviewed on Friday on Bloomberg TV, in answer to a question about whether investors made a mistake selling off on Thursday and Friday (my transcription):

"[I think] they got it right. [The situation in Europe] imperils the whole inflation case, where a lot of money has been invested over the past year or so [because of] the notion that with all the debt in the world, it's going to prompt a runaway inflation, because you'll have the central bank monetization, and the whole world is going to look like a big version of Zimbabwe.

That's been a pretty popular view, and there's been a lot of money invested according to that. You can see lines in front of the gold bullion banks in Austria, and they just put a gold ATM in Dubai - which, in my limited experience of 32 years, if there ever was a sell signal, that's a good one."

The last sentence refers to a vending machine in Dubai that dispenses gold bars. According to Bloomberg, the machine was developed in Germany, and dispenses 1 gram, 5 gram and 10 gram bars of gold, as well as gold coins.

Downtown Bangkok, Thailand, turns into a battlefield

Thai army troops on Friday fired tear gas and bullets and protestors, who responded with stones, slingshots and homemade rockets. According to the NY Times, sixteen people were killed and 141 wounded.

As we've discussed several times, from the point of view of Generational Dynamics, Thailand is in a generational Awakening era, and this spurt of violence will fizzle out, without spiraling into full scale civil war.

Additional links

Sign in South Africa <font size=-2>(Source: NY Times)</font>
Sign in South Africa (Source: NY Times)

A sign in South Africa's Greater St. Lucia Wetland Park apparently cautions visitors, when going down a hill in a wheelchair, not to roll into a crocodile's mouth. NY Times (#4)

At last weekend's negotiations over the European bailout, French president Nicolas Sarkozy threatened to leave the negotiations and to pull France out of the eurozone completely, unless the other leaders agreed to the bailout plan, causing German chancellor Angela Merkel to cave in. Guardian. The story has since been denied by all parties.

New violence has burst out in Kyrgyzstan, in the city of Jalalabad, near the volatile Fergana Valley. BBC. The country is now effectively split in two, with different groups controlling the north and south. EurasiaNet

According to a leaked foreign policy document from the Kremlin office of Russia's President Dmitry Medvedev, Russia should develop closer relations with the West, especially the United States. (This is consistent with the Generational Dynamics view that Russia will be aligned with the West in the coming Clash of Civilizations world war.) CS Monitor

"Look, I'm an economist, and economists are useless at prophesying anything." -- An Athens economist, responding to a question on Friday on the BBC World Service.

Because of increasing concerns about personal privacy, and Facebook's increasingly loose rules about preserving privacy, some long-time users are deleting their accounts -- which Facebook makes as difficult as possible to do. CNN

(Comments: For reader comments, questions and discussion, see the 15-May-10 News -- European financial instability returns thread of the Generational Dynamics forum. Comments may be posted anonymously.) (15-May-2010) Permanent Link
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14-May-10 News -- Thailand's army assaults Bangkok protestors

Euroland countries talk about ceding control to Brussels.

Waves of violence strike Bangkok, as army attacks protestors

The most dramatic event that occurred in Bangkok on Thursday was when a renegade army officer was shot in the head as he was being interviewed by New York Times reporter Thomas Fuller. The general, Khattiya Sawatdiphol, has been hospitalized and is in critical condition. It's not known who fired the shot.

The shooting occurred as the Thai army was preparing an assault on the barricades of the "red-shirted" protestors that had occupied Bangkok's boutique shopping district, according to Fuller's report in the NY Times. General Khattiya had been seated inside the barricade when he was shot, possibly from a tall building in the distance. His last words before being shot were, "The military cannot get in here."

As we reported at length yesterday, the confrontation pits two ethnic groups against each other. The army and government forces represent the Thai-Chinese fair-skinned elite market-dominant minority, while the red-shirted protestors represent the indigenous dark-skinned laborers, mostly migrants from the northeast.

General Khattiya represents part of Thailand's problem: The army itself has people form both ethnic groups. Khattiya was a "renegade" who had joined the protestors and became known as Seh Daeng ("Commander Red"), according to a BBC profile. He was a loyal supporter of exiled former Prime Minister Thaksin Shinawatra, and he's a member of the more radical wing of the protest movement. After leaving the army, he became a "security adviser" to the protestors, and is said to be loathed by government officials.

Apart from Khattiya, one protestor was killed in Thursday's gunfire. The army barricade will continue on Friday, according to Asia One. The army is deploying 52 armored vehicles to seal off the barricade zone

As we've reported many times, Thailand is in a generational Awakening era (like America and Europe in the 1960s), and so a civil war is impossible. But spurts of violence are possible, and there are two possible paths that Thailand can take. One is the path followed by Iran last year, where hardline clerics dispersed peaceful protestors by a series of killings, jailings, and reported torture. The other path, that was followed by America and Europe in the 1960s, is to be shocked by the violence so far, and turn away from further violence by giving in to the protestors' demands.

What's the stock market looking for today?

The Labor Department reported that 444,000 Americans filed for jobless claims last week, according to Bloomberg.

When the report first came out, at 8:30 am on Thursday, I was listening to CNBC analyst Jim Iurio give the initial figures. Here's what he said (my transcription):

"The numbers are a little worse than expected, 444. ... The stock market shouldn't like this. [Pause, watching the Dow Industrials futures.] The stock market isn't budging, trading down a hair.

But I think what's important here is that the strength or weakness of the underlying economy is not really what the stock market is looking at right now, so for that, it's not even a concern. ...

The stock market is looking at liquidity. This has been a huge week. Earlier in the week, the central banks told us that no matter what the problem is, they'll provide endless liquidity, and that's what the market is going to trade at."

This is really an amazing statement, but it's a perfect reflection of what's going on today. It makes no difference what the fundamentals are. All that matters is that the U.S. and Europe are pouring huge, almost unlimited amounts of money into the European bailout, and some of that money will flow into the stock market. This is similar to how last year's trillion dollar stimulus package caused the market to rise in the last year.

This is pure bubble philosophy. Iurio is practically admitting that the stock market is in a bubble caused by liquidity. This is insane, but insanity is the only thing that matters today.

Every bubble must burst. And when this bubble bursts, a lot of people are going to be very badly hurt.

Analysts expect much greater central control over eurozone economies

As I've said many times, political bickering is a feature of every country in a generational Crisis era, until one or more "regeneracy events" occur to unify the country for its survival. The country's civic unity is regenerated for the first time since the end of the preceding crisis war.

We're seeing the first signs of that in Europe, as last week's near financial meltdown is forcing individual nations to consider giving up some of their autonomy to the central government in Brussels, according to the Independent. The Irish Times quotes even German Chancellor Angela Merkel as calling for "a stronger oversight mechanism for the stability and growth pact and the European Commission."

The European Commission itself has published a paper (PDF) recommending a complete overhaul of the governance procedures of the eurozone.

From the point of view of Generational Dynamics, the direct course is very unlikely. With austerity being forced on Europeans across the continent, general unrest is growing, and Europe is coming closer and closer to a war in the mold of World War I (as opposed to World War II). The negotiations of a more united Europe will not succeed at this time, but the current negotiations will play an important part when the war ends, and the survivors create a new Europe in order to guarantee that there's never be another European war like this one.

Additional links

President Barack Obama has played a pivotal role in convincing European officials to take "resolute action" to rescue the euro with last week's huge bailout. Telegraph and Independent.

Portugal became the latest country to announce severe austerity programs to a stunned population, following Greece and Spain. Portuguese Prime Minister José Sócrates announced a 5% pay cut for senior ministers, and a "crisis tax" on wages and big corporations. Reuters

Fear of a collapse of the euro currency is prompting a panic in buying of gold coins and bars in parts of Europe. Daily Mail

U.S. home foreclosures climbed to a new record in April, indicating that the "shadow inventory" of unsold homes continues to grow. Bloomberg

An article in Thursday's NY Times has a photo of a blackboard containing a very dirty jokes that only Unix gurus can understand.

The dreams of thousands of Bengalese who went to Dubai to make good money have had their dreams swept away by the financial crisis. Many of them are now earning paupers' wages, sweeping the streets of Iraq. The Diplomat

The US, China and South Korea should be preparing for the complete collapse of North Korea when Kim Jong-il dies, but the subject is too sensitive for the three countries to discuss it. The Diplomat.

A mysterious blight is destroying the Afghan poppy harvest. Ironically, this is helping the Taliban, since opium prices are surging. The farmers are blaming the US and Nato, but the UN says that it's happening naturally. NY Times

(Comments: For reader comments, questions and discussion, see the 14-May-10 News -- Thailand's army assaults Bangkok protestors thread of the Generational Dynamics forum. Comments may be posted anonymously.) (14-May-2010) Permanent Link
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13-May-10 News -- Thailand's government retracts peace offer

U.S budget deficit quadruples in April

Thailand's class struggle becomes more bitter as government withdraws reconciliation offer

An offer to call new elections in November has been withdrawn by Thailand's Prime Minister Abhisit Vejjajiva, after "red shirt" protestors accepted the reconciliation plan, but then refused to end their protests, according to AFP.

The protestors are occupying élite shopping areas in downtown Bangkok, causing store owners to lose a great deal of money, and causing Abhisit to come under an enormous amount of political pressure to bring the protests to an end.

Abhisit followed up the withdrawal of the reconciliation plan by ordering the protestors to disperse, and threatening to cut off supplies of electricity, water and food to the protestors camp by Wednesday at midnight. However, late word is that Abhisit has rescinded these threats, expressing concern about the potential impact on nearby residents. Australian Network News.

Abhisit has now offered several ultimatums to the protestors and has backed off each time, resulting in a danger that he'll turn into a laughing stock, according to the Bangkok Post.

From the point of view of Generational Dynamics, none of this political chaos is particularly surprising. This is a generational Awakening era in Thailand, like America and Europe in the 1960s. And, like America and Europe in the 1960s, there is a "generation gap" separating political views of young and old, and massive street protests.

However, there is absolutely no chance of a civil war, as some people fear. A civil war cannot occur during a generational Awakening era or, if one begins, it will fizzle quickly. We've seen this in other Awakening era countries that I've reported on over the last few years, including Lebanon, Iraq and Iran.

Thailand's Awakening era confrontation pits two ethnic groups against each other. Businesses in Bangkok are dominated by fair-skinned Thai-Chinese élites in a market-dominant minority, according to Christopher Johnson, a Thai expert reporting for the Japan Times.

The "red shirt" protestors represent the majority, the poor dark-skinned laborers, mainly from farms in Thailand's northeast, but who have migrated to Bangkok in recent years, where they take low-paying jobs as servants.

The rural group won a political victory in 2001, when Thaksin Shinawatra, born in the north of Thailand, became Prime Minister, but was deposed by a military coup in 2006, after a financial scandal. The coup is thought to have been sponsored by the élites who were looking for a reason to restore power to the Thai-Chinese group. (See "Coordinated bombings across Bangkok cancel Thailand's New Year's Eve celebrations.")

However, the political power of the rural groups did not end until 2008, when a massive protest by "yellow-shirted" protestors caused the government to collapse. (See "Thailand government collapses, ending crippling riots from class war.")

So the yellow-shirt protestors, representing the élite, had their victory in 2008, and the red-shirt protestors, representing the rural groups, are exacting revenge today.

According to Johnson:

"Unlike previous conflicts in remote border areas, this urban rebellion has been happening outside the balconies of Bangkok bloggers and the windows of commuters, Japanese expats and tourists on the Skytrain. Lacking direct contact with protesters, many in the Thai media have mislabeled them off-duty farmers; in fact, many live and work in Bangkok and are able to quickly pad the size of crowds wherever protests occur.

The red shirts, who are used to taking sweaty buses or whiny two-stroke motorcycles to low-paying jobs with no benefits, have no qualms about causing inconvenience to white-collar employees and middle-class shoppers addicted to their air-conditioned cars."

Thus, these political protests will go on for a long time, possibly for years. However, as we said, this can not end in civil war in any country until it approaches a generational Crisis era.

According to Johnson, the Thailand protests represent a turning point for all of Southeast Asia, because the same kind of "demographic time bomb" occurs in other cities, including Shanghai, Hong Kong, Jakarta, Saigon, and Manila, where market-dominant ethnic Chinese elites are being increasingly challenged by huge migrant populations consisting of indigenous populations. Many of these groups are watching Bangkok with fascination, and are making their own plans.

Additional links

It seems like only yesterday when we were reporting that the budget deficit was merely tripling. (See "Budget deficit triples (yes, triples!) in 2009.") Well, the April budget deficit was $82.7 billion, more than quadrupling from $20 billion in April, 2009. AP

Some 80% of security threats to corporate computer networks result from careless or malicious insider employees. InfoWorld

Popular German magazine Der Spiegel seems to be in conflict with itself. In one article, it complains that Greeks are in denial about economic reality because they blame foreigners for much of their country's predicament. But in another article, the magazine complains that many German companies ARE in fact at fault for resorting to bribes and corruption in lucrative Greek deals during the bubble.

South Koreans have concluded that the Chinese will not help them with reprisals against North Korea, when the current investigation conclusively shows that the North Koreans were responsible for the March 26 sinking of the Cheonan warship. Korea Times

Spain's Prime Minister Jose Luis Rodriguez Zapatero announced harsh austerity measures to bring down the country's budget deficit. VOA

(Comments: For reader comments, questions and discussion, see the 13-May-10 News -- Thailand's government retracts peace offer thread of the Generational Dynamics forum. Comments may be posted anonymously.) (13-May-2010) Permanent Link
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12-May-10 News -- David Cameron becomes Britain's Prime Minister

Faisal Shahzad, the Times Square bomber, complicates US relations with Pakistan

Conservative party leader David Cameron becomes Prime Minister of Britain

As an American, it's breathtaking to watch how quickly the British can change governments. There was an inconclusive election last weekend, with no party having an outright majority. Until Tuesday afternoon, it appeared that Gordon Brown would remain in office for a while. Then, in the blink of an eye, Brown moved out of #10 Downing Street, and asked the Queen to accept his resignation, and ask David Cameron to form a new government.

The Labor Party of the Gordon Brown, who replaced Tony Blair as PM a couple of years ago, came in second to the Conservative Party (the Tories) in Thursday's election. However, the Tories didn't have a majority either, and so the right-wing Conservative Party has agreed to form a coalition with the party farthest on the left, the Liberal Democrats. Thus, Conservative David Cameron will be the new prime minister, and Nick Clegg, the head of the Liberal Democrats, will be the new deputy prime minister. [A reader has educated me that the Labor Party is to the left of the Liberal Democrats. I apologize for the error.] (Paragraph corrected, 14-May)

As I've written many times, it's a feature of generational Crisis eras that they are dominated by political bickering and few accomplishments, until a "regeneracy event" unifies the country in a new war. Countries from Japan to Germany and Belgium have such fragmented governments now that little happens beyond bickering. That's true now of the U.K., and will probably be true of the U.S. after the November elections.

The Brits are very hopeful today, because they're hoping that David Cameron will bring change, and an end to the bickering. Generational Dynamics says that the bickering will continue and worsen, and that nothing will change until events, rather than politicians, force changes.

Times Square bomber complicates relations with Pakistan

When London's subways were bombed by suicide bombers on 7/7/2005, it soon became clear that the suicide bombers were British citizens, born of naturalized British citizen parents who had immigrated from Pakistan, and who had received training from Kashmiri terrorist groups in Pakistan. (See "Pakistan cracks down on extremists.") In the wake of that attack, Pakistani officials rounded up and jailed hundreds of suspected militants who might have had a relationship with the terrorists.

Even though there are significant differences between the London subway bombings and the attempted Times Square bombing, there are also enough similarities to make it worthwhile to compare the two incidents.

First, let's list the most obvious differences:

The question is always the same: How could a citizen of a country (the U.K. or the U.S.) become so radicalized as to wish to blow up large masses of innocent people?

I particularly want to eliminate from consideration those who become suicide bombers because of their parents' wishes. We've heard stories of such cases among radical Palestinians, for example. Instead, I want to focus on those who become terrorists DESPITE their parents' wishes.

I've probably read hundreds of studies and articles and news stories on subjects related to this question over the past eight years, and I've drawn the following conclusions, which I believe to be true but cannot prove without a lot more research:

In summary, a troubled young man goes through a process: He sees a way to solve his personal problems and become a hero in his parents' eyes, by adopting the moral authority of a terrorist spiritual leader.

From the point of view of Generational Dynamics, it appears that young people in countries in a "fifth turning era" (countries that have passed through a generational fourth turning Crisis era without having a crisis war) are particularly susceptible to becoming altruistic terrorists. (See my 2005 article, "Belgians shocked that suicide bomber is Belgian woman.") In such countries, younger generations become increasingly angry and vengeful, and hold human life to have less and less value. This leads to the altruistic terrorism. However, the same thing happens, though less often, to young people in countries in Crisis eras.

Faisal Shahzad appears to follow this pattern, based on what I currently know. How does this apply to Shahzad?

Shahzad's parents live in Peshawar, a hotbed of Taliban terrorism, and as I've written a number of times in the past, Pakistanis have often blamed America for Taliban terrorism. This is an example of a population in denial, but it's true of many Pakistanis. So it's quite possible that Shahzad's parents blamed America for the terrorism around them.

We know that, as early as 2004, Shahzad was bitterly opposed to the President Bush's policies in Iraq, according to reporting by Associated Press. Shahzad took several trips to Pakistan, where his attitudes about Bush undoubtedly intensified.

Long-time readers of this web site will remember how furious I was that the loony left, from to NBC News to the New York Times, were doing everything in their considerable power to bring about the defeat and humiliation of the United States in Iraq, especially during the discussions of the "surge," in 2006-7. At the time, I indicated that I believed that their actions were close to treason, and that they were doing tremendous damage to America. The situation with Shahzad may be one tangible result of their actions.

In 2008, Shahzad lost his home to foreclosure. This was probably the last straw.

Faisal Shahzad and the Pakistan Taliban, Tehrik-e-Taliban (TTP)

There is some question as to whether Shahzad has had contact with Tehrik-e-Taliban (TTP), the Pakistan Taliban group; both TTP and Pakistan's government have denied it.

But Pakistan's Dawn news service says that the U.S. is pressuring Pakistan on the attempted bomb plot. On Sunday, US Attorney General Eric Holder said that American officials firmly blamed TTP for the attempted bombing, and Secretary of State Hillary Clinton told CBS news that there would be "severe consequences" if a successful attack in the United States were traced to Pakistan.

This has raised fears of a wider war, according to Bloomberg, because U.S. pressures on Pakistan may ignite a wider war. In particular, the U.S. is pressuring the Pakistani army to go into North Waziristan, one of the tribal regions on the border between Afghanistan and Pakistan, and clean out the militants.

The situation has gathered some momentum since then. BBC reports that at least 24 militants were killed and several other injured in suspected U.S. drone attacks in North Waziristan.

And on Tuesday, according to Dawn, the US State Department said that it was considering putting TTP on the list of groups designated as "foreign terrorist organizations." This would trigger punitive measures, such as freezing assets tied to the group, barring foreign nationals with links to it from entering the United States and making it a crime to give any material help.

This has raised the level of concern among Pakistan's public. For example, an editorial in Pakistan's The Nation asks, "Is a US attack imminent?" According to the opinion writer, the Shahzal incident is being used as an excuse by the US to send additional troops into Pakistan.

And in India, the arrest of Shahzad has "vindicated its oft repeated stand that Pakistan is the epicentre of terror activities," according to Hindustani Times.

From the point of view of Generational Dynamics, Pakistan and India are headed for a new genocidal war, re-fighting the bloody war that following Partition in 1947, creating the two countries. Both the Pakistanis and the Indians are well aware of the danger of a breakout of war, and they've been pursuing peace talks, but the Faisal Shahzad situation shows that very little is under their control.

Backlash developing against massive European bailout

The continually deteriorating financial situation in Europe remains far and away as one of the most important news stories in the world right now.

A backlash appears to be developing against the massive bailout of the last two days. Euro Intelligence summarizes the growing feeling by saying, "Euphoria ends as investors suspect another shameless EU confidence trick."

Euphoria was indeed very high on Monday, and it appeared that Europe's problems were ending. Here's a graph, courtesy of FT Alphaville, of yields (interest rates) on bonds of the five PIIGS countries (Portugal, Italy, Ireland, Greece and Spain):

Bond yields on the five PIIGS countries, as of Monday, May 10 <font face=Arial size=-2>(Source:</font>
Bond yields on the five PIIGS countries, as of Monday, May 10 (Source:

As you can see yields fell sharply on Monday, thanks to the euphoria from the bailout package, and also thanks to the fact that the European Central Bank had started purchasing these bonds, as part of the bailout program. Yields continued to fall on Tuesday, according to Bloomberg, as the ECB continued its bond purchase program. However, it may be that nobody was buying these bonds EXCEPT the ECB.

The same skepticism that we described yesterday continued into Tuesday. Few people seem to believe that the Europeans have done anything to solve the underlying structural problems, but have only bought a little time by pouring huge amounts of liquidity into the system.

John P. Hussman's weekly newsletter contained an interest analysis that's worth summarizing. In an article entitled, "Greek Debt and Backward Induction," he argued as follows:

Hussman concludes that Greece appears unlikely to remain in the eurozone for long.

With this last part of Hussman's argument I disagree.

From the point of view of Generational Dynamics, Europe is headed for another major war, like the ones it has had at regular intervals for many, many centuries. So rather than Greece leaving the eurozone, my expectation is that the EU itself will split, and right now the fault line appears to be between the northern countries (including Germany and Britain) versus the southern countries (including France).

In the Generational Dynamics forum, member JLak makes the argument that the new bailout actually brings war closer. He compares the European Union today to America prior to the Civil War, when there was a clear distinction between the hectic factory lifestyles of the North, versus the genteel cotton plantation lifestyles of the South:

"When faced with a tough decision, extreme measures will be taken to delay until larger forces [take control]. Eventually it will turn into a situation that parallels the prelude to the American Civil War. The EU states have roughly the same political cohesion as the US states of that era, and there is a central ideological battle between a system of production and innovation through free choice of the individual, and a system of forced labor controlled by the anointed few (my view of socialism).

The question is whether there will be a war over it. Do EU nations care if the PIIGS default? Before bailing them out, it is not worth going to war over. After bailing them out, they will have no choice because their own debt will threaten their peaceful existence. Germany, UK and France are in no position to be lending to profligates."

Whatever the scenario, I believe there is one thing that everyone agrees on: A major historic change has occurred in Europe this week. The euro common currency was supposed to force all countries to work together; instead it created major divisions. The ECB was supposed to be "fiercely independent" of political pressures; instead, it flip-flopped and caved into political pressures. Germany was supposed to lead the EU in solid, responsible democracy; instead, it increasingly exhibited xenophobia toward another EU country, Greece.

Decisions were made with good intentions but, like all major decisions, there are always unintended consequences. We should begin to see those unintended consequences soon.

Additional links

Is Germany returning to the days of Kaiser Wilhelm, headed for new divisions and war? Berliner Republik (in German)

Europe’s Debt Crisis: Your Questions Answered. Includes some answers from Yves Smith of Naked Capitalism. NY Times

About one in five Israeli men between the ages of 35 and 54 are not part of the labor force, giving Israel one of the largest welfare programs in the West. LA Times

Europe's debt aid package took a nudge from President Obama. This could have political ramifications if the U.S. taxpayer is contributing a lot to the European aid package. NY Times

Another 47 cases of H1N1 swine flu were confirmed last week in Bangladesh. Pakistan's Geo TV

(Comments: For reader comments, questions and discussion, see the 12-May-10 News -- David Cameron becomes Britain's Prime Minister thread of the Generational Dynamics forum. Comments may be posted anonymously.) (12-May-2010) Permanent Link
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11-May-10 News -- Europe's super-nuclear bailout

Incumbent Republican senator Robert Bennett defeated by Tea Party activists

Europe announces a super-nuclear bailout plus

The word "gobsmacking" was heard several times on the BBC on Monday, describing the spectacular bailout package. Markets in Asia, Europe and North America surged 3-4%.

The package seems to promise an almost unlimited amount of money for ailing eurozone economies, coming from all directions. Eurozone countries will bail each other out. The International Monetary Fund (IMF) will provide hundreds of billions of euros. The Fed will swap dollars for euros with European banks, to provide plenty of liquidity.

The "nuclear option" has been adopted by the European Central Bank in full force. The ECB will buy up toxic debt issued by trouble eurozone economies, much as the Fed bought up toxic assets from US banks. There seems to be no end to it.

MarshAviator in the Generational Dynamics Forum said that it reminded him of the article, "One, Two, Three ... Infinity," from 2008, in which I compared to the ever-increasing government spending plans to a book by George Gamow that I read in school in the 1950s. My use of that particular phrase was to convey the idea that debt was on an exponential growth path that would not be stopped except by a major financial collapse and crisis.

And indeed the Zero Hedge blog stated it pretty well:

"Morgan Stanley's Stephen Roach spoke with Bloomberg's Tom Keene earlier, pointing out the most troubling statistic about recent market activity, which has to do with both the frequency and amplitude of catastrophes: "The crises are coming with greater frequency. Over the last 25 years we have had an average of one crisis every 3 years. The gap this time is 18 months. The scale is bigger. This is a much more serious problem in the eurozone than the Asian financial crisis." So intercrisis half-life continues to decline as the severity jumps exponentially. In other words, in nine months we will need a combined Fed-ECB-BOE-PBoC-BOJ effort for about $10 trillion just to calm the markets. 4.5 months after that, $100 trillion more..."

In fact, there was a great deal of skepticism on Monday. This is a big change in public mood from 2008, when the large bailouts and stimulus programs were generally greeted with optimism -- and indeed, then resulted in last year's renewed stock market bubble.

As usual, from the point of view of Generational Dynamics, we're most interested in changes in behaviors and attitudes of large masses of people, and so we look at what various people are saying as a reflection of those attitudes and behaviors.

Outright hostility - in Europe and America

What investors are looking for is a repeat of last year's bubble. If a huge US bailout program can drive the Dow up a few thousand points, then maybe a eurozone bailout program will drive it up another few thousand points. Nobody I heard today was that explicit, but that seemed to be the prayerful hope.

On the other hand, there was plenty of outright hostility. The Germans, who will have to bear the brunt of the bailout, are very unhappy at this turn of events, after reluctantly agreeing to pay 25 billion euros as their share of the bailout of Greece. Chancellor Angela Merkel, whose governing coalition suffered major losses in Sunday's regional elections, is doing a hard sell on the new bailout. According to AP, Germany's share will be 123 billion euros or more. Merkel plans to push it through Germany's parliament as quickly as possible.

As EuroIntelligence put it, "Here was Merkel sacrificing the future of Europe for the price of winning a state election, and now she loses it."

There's also some hostility in America's contributions to the bailout. These objections are very small right now, but they seem to be growing, and could either fizzle or become a major political issue.

Here's how well-known financial writer John Mauldin expresses his anger:

"Was it only last week I was expressing outrage that US taxpayers would have to pick up the check for Greek profligacy in the form of IMF guarantees? This morning we wake to up the sound of $250 BILLION in IMF guarantees for a European rescue fund, most of which will go to countries that are eventually (in my opinion) going to default. That is $50 billion in US taxpayer guarantees. Not sure what that translates into for Britain or Canada or Australia.

I can swallow the Fed dollar swaps to the ECB. Don't really like it, but I can deal with it, as I don't think it will ultimately put US tax-payers at risk, as long as the swaps are in dollar terms. But the IMF bailout is just wrong.

Interestingly, the euro shot up on the announcement in what was now clearly short covering. As I write this, it is almost back down to where it started. That seems to me to be a vote of "I don't believe you." We will see. But if the ECB actually goes ahead and floods the market with liquidity, that will be very good for all types of risk assets.

Note that in last Friday's letter I quoted Trichet where he said we would not do what he agreed to do over the weekend. What a turn-about. So much for ECB independence. The European leadership must have realized the wheels were coming off and brought out the nuclear option in order to stave off a very serious crisis. In my opinion, this buys time but does not solve the problem.

The eurozone leaders assume that this is a liquidity problem. It is not. It is a solvency and balance sheet problem. You do not solve a debt problem with more debt. This only shoves the football a few yards (or maybe I should say meters) down the field. And it is going to cause a MASSIVE misallocation of capital once again which will create more imbalances that will have to be dealt with. Ugh."

Mauldin makes interesting points that are worth dwelling on because they may become important political issues.

He points out that Jean-Claude Trichet, president of the European Central Bank (ECB), did a complete flip-flop. This really is incredible. At a press conference in the middle of last week, Trichet said that the ECB governors weren't even DISCUSSING the nuclear option, and certainly had no plans to adopt it. Unless he did a complete about-face in four days, he must have been lying at the time.

Mauldin says that "eurozone leaders assume that this is a liquidity problem. It is not. It is a solvency and balance sheet problem." Now, I agree that Mauldin is right about it being a balance sheet problem, but I believe Mauldin is wrong about what the eurozone leaders believe.

Like many people, Mauldin is giving the eurozone people too much credit for honesty and credibility. He's saying that the leaders are providing liquidity, so therefore they believe that it's a liquidity problem. I'm afraid that's not true. They know very well that it's a solvency problem. They know very well that Mauldin's points about massive misallocation of capital are correct. But these politicians don't give a shit, any more than the investment bankers gave a shit when they were creating toxic assets and defrauding investors with them. They just want power, money, votes, like everyone else, and they'll be looking all around them for every possible opportunity to blame someone else when the time comes.

We've quoted well-respected Financial Times columnist Wolfgang Münchau several times in the last few weeks, because he seems to be one of the few expressing realistic, knowledgeable opinions, and he doesn't seem to think any more highly of the eurozone's political leaders than I do:

"The eurozone must take responsibility or it will split

"Whatever it takes" is not a bad motto for the fight to save the eurozone. And the same goes for the new European stability fund, which fills a yawning gap in the institutional fabric of the eurozone. But for this to work, we need clarity about which fights to fight and which instability to stabilise. And this is where the proposed reforms are likely to fail.

When I heard Jean-Claude Juncker, the president of the eurogroup of finance ministers, talk about a globally organised attack on the euro, I realised that the game was probably up. The reforms, desirable as they may be, are probably too late. Europe’s leaders are not solving the problem, they are fighting a public relations war. Their target is not economic imbalances, but speculators: hedge funds, investment banks, bond market vigilantes and, in particular, those ominous Anglo-Saxon rating agencies. “Whatever it takes” means that the European Union will set up a European rating agency, funded by public money and subject to European regulation.

Their populism has spun out of control. Angela Merkel, the German chancellor, still has difficulty in reining in the anti-Greek bigotry she unleashed in Germany during the early stages of the crisis. It seemed the politically expedient thing to do at the time.

We know from the history of European financial crises that politicians are ill-equipped to communicate with the financial markets. They are happy to take the bondholders’ money to finance their excessive deficits, and then act outraged when those bondholders retreat and push up interest rates. But look at this from the perspective of bond investors. Over the past nine months, they had to put up with the news that Greece had cheated for years, that a German chancellor was making political commitments without the readiness to back them up, and a Spanish prime minister in denial over his country’s deep structural problems. The bondholders know that the southern Europeans cannot get out of the mess through higher nominal growth. The rise in southern European interest rates is not the consequence of a speculative attack or a sinister plot. It is a belated realisation of an underlying misalignment. ...

Ms Merkel’s other proposal to deprive deficit countries of their voting rights is even less realistic. The logic behind it is that an organisation that relies on unanimous votes for important decisions can never impose a penalty on a member. ...

I have heard the suggestion that this may be part of a German game plan to forge a small “core Europe” with Germany at the centre. I am not so sure but whether by design or accident, it would do lasting damage.

I still hope that EU leaders choose integration over division, but what they are saying is not consistent with what I am hoping for. “Whatever it takes” sounds good. But I fear it is a lie."

The people I'm quoting are not marginal "nothing" people like myself. These are major mainstream media figures, expressing the same kind of anger and cynicism that I've been expressing for years, long before it was fashionable.

I listened to a lot of pundits and analysts on Monday. I heard some of them say that the market was going to go up and up and up -- but that's what they're required to say on CNBC or Bloomberg TV. But I don't believe that I heard a single one of them say that the bailout was going to solve Europe's problems, or that Europe's problems weren't going to get worse. This is a big change in mood during the last year -- or even the last few weeks.

High anxiety

Volatility and anxiety are very high these days. Several people wrote to me over the weekend using the word "scared," after what happened last Thursday. In each case I wrote back to point out that they have a big advantage over other people because they read this web site and they know what's coming, and therefore they can use the time to prepare.

A lot of people breathed a sigh of relief on Monday, as the Dow Industrials index gained over 400 points. The problem is that the giant gains are a mixed blessing. Yes, it's good that the market is going up, but an outsized gain is as much a measure of panic and anxiety as an outsized loss.

In September and October of 1929, the market had been falling steadily. People must have been very frightened about losing their life savings. (See my Dow Jones historical page. )

Then, on Monday, October 7, the market shot up by 6.32%. Can you imagine how people must have felt that day? They thought that they were out of the woods, and everything would be ok. What they didn't know was that this was just three weeks before the stock market crashed, and they would lose everything.

So take care, Dear Reader. The best that you can hope for is that things will settle down for a while. The worst is a major financial crisis -- and as regular readers know, Generational Dynamics predicts that this must happen at some point.

BBC interview with Michael Lewis

Financial author Michael Lewis was interviewed on the BBC program The Interview over the weekend.

His book is about people who analyzed the subprime mortgage-backed securities that were being sold by the trillions in 2005-2006, and were able to invest in credit default swaps on these securities, and ended up making billions of dollars.

What I found personally interesting is that all the people who made money from the crisis ended up being hated, according to Lewis. "All the main characters in the story all suffer health problems in the course of their journey."

However, the part I want to comment on is when he was talking about whether the people involved in the deals were fools or crooks - because they had to be one or the other. Here's my transcription of what he said:

"What's interesting about their experiences - they almost always take the view that, for the most part, the system fooled itself. Yes, people were deceptive, people were telling lies. To a large extent, even the very powerful people in the system tended to believe those lies, and the proof of it is that the Wall Street firms at the center of it -- Merrill Lynch, CitiGroup, and Morgan Stanley -- Goldman Sachs is an exception -- these firms ended up with billions, tens of billions of dollars of losses because they end up eating their own cooking. They ended up owning this stuff.

So the punch line is, they disguise the risk from the system so that they can peddle this junk, but they also ended up disguising the risk from themselves.

And so it's a hard question to answer. I think there were some crooks, but generally I think it's more a story of mass delusion than criminality."

It infuriates me the way that Lewis and other financial journalists pay obeisance to the bankers that defrauded millions of people. And Lewis is completely wrong in this analysis.

Banks like CitiGroup had absolutely no intention of assuming any risk whatsoever. They sold the toxic assets through a separate investment bank called a "structured investment vehicle," or SIV. (See my 2007 article, "Questions and answers about the 'credit crunch.'")

The same Citi employees worked in the SIV, and they collected all the fat fees and commissions when they defrauded investors by selling them the toxic mortgage-backed securities. But since the sales went through the SIV, Citi and its employees were protected from any future losses. So Lewis is completely wrong when he said that they were disguising the risk from themselves. They were very well aware of the risks, and the fact that they even used this SIV mechanism is evidence of guilt.

The reason that Citi ended up having the toxic assets on their own books is because, once the public became aware of the scheme, regulators demanded that Citi close out the SIVs and bring all their assets and liabilities back onto Citi's own balance sheet. But Citi never intended for that to happen. They thought that they could just sit back and collect money from fraudulent deals, and never worry about losing anything.

Even then, Citibank tried everything it could to rid of the toxic assets without having to pay any price. One of the most amazing (and most cynical) proposals was the "Master-Liquidity Enhancement Conduit." (See "Big banks discuss mind-boggling 'M-LEC' superfund to bail themselves out.")

The proposal was to put all the toxic assets into the M-LEC, so that, once again, Citi could protect its own profits, and employees can keep collecting their million dollar bonuses. In the end, regulators didn't allow the M-LEC to be used. (However, Citi still got bailed out by the government, and the employees still got their million dollar bonuses.)

The thing is that Lewis knows all this. He's been buried in all these details for several years writing his book. He knows very well how Citi used SIVs to protect themselves from risk, and yet he sucks up to them so that they'll talk to him when he writes his next book.

One story that will never be told -- because the journalists won't tell it -- is how the mainstream bloggers and journalists were just as much a part of the fraud as the bankers. I wrote many articles criticizing the absolutely ridiculous things that were being said on CNBC or in the Wall Street Journal, or on some of the blog sites, and I could barely touch the tip of the iceberg. But these mainstream journalists and bloggers are totally in the tank for the bankers who committed fraud because they want to protect their sources, protect their ad revenues, and continue to be invited to parties and conferences.

Additional links

Democrats have been apoplectic about the defeat of Utah's three-term incumbent Republican senator Robert Bennett in the Republican primary by 'Tea Party' activists. But I keep telling you, ladies and gentlemen, that the 'Tea Party' is part of a major political realignment underway, and it will target Republicans as much as Democrats. CS Monitor

Nearly 40 million Americans are receiving food stamps -- the highest number in history, and an amount that has been increasing every month since December, 2008. Reuters

Freddie Mac and Fannie Mae has already been bailed out with tens of billions of dollars of taxpayer money, but they're going to need tens of billions more in bailout money. NY Times

Morgan Stanley strategist Teun Draaisma has "thrown in the towel," and turned from a bear into a bull on European equities, after the weekend's massive bailout. FT Alphaville. The reason I mention this is because the article ends with, "Time to put the tin hat back in the cupboard for a couple of years," implying that anyone's who's a bear is a crazy loon. I wonder what FT Alphaville thinks of Financial Times columnist Wolfgang Münchau, whom I quoted earlier? I guess they think that he wears a tin hat as well.

Danger: Robots with knives could attack humans accidentally. Telegraph

Under direction of Saudi king Abdullah, Saudi Arabia's clerics have issued a fatwa against funding terror. The thrust of the fatwa is that funding terrorist organizations like al-Qaeda is just as criminal as actual engaging in terrorist activity. Memri

We've reported that the Palestinian Liberation Organization (PLO) has agreed to engage in "proximity peace talks" with the Israelis. That was based on the hope/assumption that the Israelis were quietly cutting back on building Jewish settlements in east Jerusalem. However, Israel said on Monday that it has on intention of halting construction of settlements. AP

Crisis-stricken Russians are nostalgic for bloody dictator Josef Stalin. Spiegel and NY Times

Putin, not Medvedev, remains master of Russian foreign policy. EurasiaNet

(Comments: For reader comments, questions and discussion, see the 11-May-10 News -- Europe's super-nuclear bailout thread of the Generational Dynamics forum. Comments may be posted anonymously.) (11-May-2010) Permanent Link
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10-May-10 News -- Europeans approve trillion dollar aid package

Angela Merkel's governing coalition suffers big election losses

Europeans approve 720 billion euro aid package - in principle

European finance ministers approved a 720 billion euro (almost $1 trillion) aid package for any countries in the euro zone that appear close to default, according to Bloomberg.

The breakdown is as follows:

In addition, America's Federal Reserve will join central banks in Canada, Switzerland and Japan to to provide liquidity to eurozone banks that require it.

Furthermore, the European Central Bank will announce some kind of "intervention" in financial markets. It's thought that might be the "nuclear option" that everyone has been discussing (aggressive purchase of country bonds), but no further details were given.

The BBC quotes Economic Affairs Commissioner Olli Rehn as saying, "The fiscal efforts of the EU member states, the financial assistance by the commission and by the member states, [and] actions taken today by the ECB proves we shall defend the euro whatever it takes."

However, Reuters quotes Rehn at further length as follows:

"60 billion euros would be first in line to be used... possible use of special purpose vehicle of up to 440 billion euros. The case of Greece is a benchmark for how quickly it would be activated... (It could take) some weeks to be fully operational."

The key difference is that the 60 billion euros that we have at our disposal on the basis of the community budget... that is managed according to the normal community rules".

In parallel, if needed there is available up to a volume of 440 billion euros, which the member states in the Ecofin decided to channel through a special purpose vehicle that is guaranteed by participating member states in a coordinated manner, and the Commission is tasked to do the management of this and also ensure conditionality, of course with the ECB and in cooperation with the IMF.

If needed, we will use these elements according to this legal basis -- the legal base for this 440 billion is an intergovernmental mechanism between the member states."

In other words, this seems to be a lot like some of the earlier non-bailout bailouts of Greece, where the intent was to promise to provide money in the hope of never having to provide money.

As of this writing on Sunday evening ET, investors seem to have bought in. Tokyo's stock exchange is registering big gains, while Wall Street futures are also up significantly.

However, volatility is also very high, and markets can change direction very quickly in this environment. We'll see how the bond and stock markets fare during the week to come.

Angela Merkel suffers major defeat in regional election

German Chancellor Angela Merkle's center-right governing coalition parties have suffered huge losses in regional elections, causing her government to lose its majority control of the upper house of parliament, according to Deutsche-Welle.

Opposition leaders took these election results as a sign of big changes to come in the country's political landscape.

This is one of the reasons why I don't see how the $1 trillion EU aid package could be anything like a sure thing. The German people are strongly opposed to spending 25 billion euros as their share of the aid package for Greece, although they finally agreed to it reluctantly because it was absolutely necessary.

But will the "absolutely necessary" argument work again, when the amount being discussed is 100 billion euros or more? This remains to be seen.

Additional links

For the first time, American soldiers joined Russian soldiers in Red Square in Moscow to celebrate Victory Day, the defeat of the Nazis in Europe. Other Nato forces joined in as well. NY Times

The most popular Tweeter in Venezuela is President Hugo Chavez. BBC

When the Dow Industrials fell by almost 1000 points on Thursday, it rebounded quickly largely because many investors moved quickly to buy stocks at much lower prices. However, the Nasdaq exchange is going to cancel hundreds of those trades, specifically those where the stock price had fallen 60% or more. CNN Money

France will use its intelligence agencies to track down and punish speculators who seek to profit from the debt crisis by spreading rumors. Reuters

Unlike any other period since World War II, what really makes the current period stand out is the number of people that have been unemployed for 27 weeks or more. Calculated Risk

(Comments: For reader comments, questions and discussion, see the 10-May-10 News -- Europeans approve trillion dollar aid package thread of the Generational Dynamics forum. Comments may be posted anonymously.) (10-May-2010) Permanent Link
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9-May-10 News -- Europeans to make historic announcement to stop global panic

Palestinians agree to begin 'proximity talks' with the Israelis.

European leaders will be making a historic announcement on Sunday evening

I don't know for sure, of course, whether Sunday's announcement will be truly historic. What I know for sure is that all the financial experts are saying that there MUST be a historic announcement on Sunday, or there will be market chaos on Monday.

In fact, I've never seen anything like this. Bloggers and journalists who used to call people like me "apocalyptic" are suddenly echoing me.

The following statement by Mohamed El-Erian, CEO of Pimco, the largest bond fund in the world, was posted on FT Alphaville late on Saturday:

"Yesterday night’s important news out of Europe points to renewed efforts to rescue Greece and safeguard the Euro. The news will undoubtedly be accompanied by additional announcements out of Brussels and Berlin, as well as Washington DC. In the process, the stakes are getting even bigger…for Greece, Europe and the global economy.

As the announcements multiply, it is even more important to be clear about the key question. This is best summarized by a simple, and disturbing image, that a friend alerted me to:

With Greece (as well as Portugal and some other countries) now visibly drowning in a sea of debt, the question is whether the rescuer (EU/IMF) can pull off the rescue or, instead, get pulled down with all parties drowning.

So far, the attempts at rescue-including last Sunday’s dramatic EUR 110 billion announcement-have have been incomplete with respect to both design and implementation. They were thus viewed as insufficient and not credible by analysts and markets. As a result, the Greek crisis morphed in the following days into something much more sinister for Europe and the global economy.

This explains this weekend’s shift in the EU to a “whatever it takes” mindset. We are seeing evidence of a significant step-up in crisis management. Yet the question is not whether a step-up is required-it clearly is. The question is whether the strengthened rescue attempt will prove sufficient. ...

Even with this critical uncertainty, we should not under-estimate the historical relevance of what is happening this weekend; and the stakes for Europe and the global economy are huge.

If this rescue attempt does not work, there will be a material acceleration in the process of change to Europe’s economic, financial, and institutional landscape; and the reality of the debt explosion in industrial economies will become even more of a destabilizing factor for the world economy."

Statements of this sort also appeared on the web sites for the Wall Street Journal and NY Times on Saturday.

Here, for example, is what appeared on the NY Times web site on Saturday:

"The fear that began in Athens, raced through Europe, and finally shook the stock market in the United States is now affecting the broader global economy, from the ability of Asian corporations to raise money to the outlook for money-market funds where American savers park their cash.

What was once a local worry about the debt burden of one of Europe’s smallest economies has quickly gone global. Already, jittery investors have forced Brazil to scale back bond sales as interest rates soared and caused currencies in Asia like the Korean won to weaken. Ten companies around the world that had planned to issue stock delayed their offerings, the most in a single week since October 2008. ...

The crisis is so perilous for Europe that the leaders of the 16 countries that use the euro worked into the early morning Saturday on a proposal to create a so-called stabilization mechanism intended to reassure the markets. On Sunday, finance ministers from all 27 European Union states are expected to gather in Brussels to discuss and possibly approve the proposal. ...

A decade ago, it took more than a year for the chain reaction that began with the devaluation of the Thai currency to spread beyond Asia to Russia, which defaulted on its debt, and eventually caused the near-collapse of a giant American hedge fund, Long-Term Capital Management.

This crisis, by contrast, seemed to ricochet from country to country in seconds, as traders simultaneously abandoned everything from Portuguese bonds to American blue chips. On Wall Street on Thursday afternoon, televised images of rioting in Athens to protest austerity measures only amplified the anxiety as the stock market briefly plunged nearly 1,000 points."

These "apocalyptic" kinds of remarks are occurring because even mainstream journalists were shocked by what happened on Thursday, when the Dow Industrials fell by almost 1000 points in a few minutes, and then partially recovered.

And we aren't hearing these things just from journalists. Politicians are also expressing a great deal of alarm.

President Barack Obama is quoted by AFP as saying, "I am very concerned about what's happening in Europe. ... I think it is an issue that the Europeans recognize is very serious. If we can stabilize Europe that will be good for the United States."

French president Nicolas Sarkozy said, "The eurozone is going through the worst crisis since its creation. The leaders have decided to put in place a European intervention mechanism to preserve the stability of the eurozone. The decisions taken will have immediate application, from the point that financial markets open on Monday morning." Scotsman

German Chancellor Angela Merkel said they will send "a very clear signal" to market speculators, according to Deutsche Welle. Merkel has been strongly condemned for "dithering" in approving the bailout of Greece, and now polls show that her party is going to suffer a major defeat in Sunday's regional elections.

The spreading crisis

All of this is a reaction to the riots this week in Athens and to the 1000 point plunge on Wall Street on Thursday. But that's only a small part of what's been going on.

I wrote a couple of weeks ago that it was obvious, based on the bond yields and credit default swap prices for Greece and Portugal, that there was already a major panic in full swing. You don't have to be a psychic to see this -- you just have to open your eyes. But the mainstream press and bloggers barely say a word about it. Since then, the panic has spread to stock markets in Europe, Asia and the U.S.

Here's what an otherwise anonymous person named Margaret wrote to me a couple of days ago:

"I just want to say thank you for this site and your level-headed analysis of the world. While it may be a wild world, it is easier to understand after I read about it here. I think understanding is the key to not being afraid. I believe I am way more prepared to face what will come than most people I know. I also like your wit and humor. Big huge THANK YOU!!!"

It's very flattering to receive messages like this, of course, and they go to the heart of what I've been trying to do, in terms of giving web site readers the knowledge to prepare for what's happening.

You, Dear Reader, can depend on my web site to tell you what's going on in the world, and based on what we've seen in the mainstream media and among the mainstream bloggers, this may well be the only place you can find out what's going on in the world. At any rate, it's worth a few minutes of your time each day to read what's posted here.

Recall that credit default swaps (CDSs) are insurance policies that pay off when the underlying debt payments default. A couple of weeks ago, it was only the CDSs for Greek and Portuguese debt that were in trouble. But now debt for all of Europe is surging:

CDS prices surge for European bonds <font face=Arial size=-2>(Source:</font>
CDS prices surge for European bonds (Source:

As I'm writing this on Saturday evening, the BBC is reporting the first details of the planned announcement on Wednesday: A 90 billion euro stabilization package for all of Europe. This hardly seems enough, given that the stabilization package for Greece alone was 110 billion euros.

Perhaps there won't be a historic announcement on Sunday after all. In that case, there may well be historic results when the markets open on Monday.

Whatever happens on Sudan and Monday, the important thing for you, Dear Reader, is to be prepared. As I've told you dozens of times, you can't prevent what's coming, but you can prepare for it. Treasure the time you have left, and use the time to prepare your self, your family, your community and your nation.

Palestinian Liberation Organization agrees to 'proximity talks' with Israel

The phrase "proximity talks" refers to talks between opposing parties indirectly through an intermediary.

In this case, the opposing parties are the Israeli government, headed by Prime Minister Benjamin Netanyahu, and the Palestinian Liberation Organization (PLO), headed by president Mahmoud Abbas (also known as Abu Mazen). The PLO agreed on Saturday to begin the talks, according to Haaretz.

These two people do not get along, and there are bitter disagreements between them that will make the talks almost an empty gesture for show.

From the point of view of Generational Dynamics, these talks cannot succeed, and the region is headed for a major war re-fighting the genocidal war between Jews and Arabs that followed the partitioning of Palestine and the creation of the state of Israel in 1948.

There have been three "minor" wars in the Mideast in the last four years, the last one being the early 2009 war between Israeli and Hamas in Gaza. There are widespread fears that a new war could begin at any time, and this is one of the motivations for the agreement to the proximity talks.

Additional links

The U.S. military has been getting things doen in Haiti, every since the January 12 earthquake. but now the U.S. military is pulling out. NY Times

With Iceland's Eyjafjallajokull volcano wreaking havoc in Europe again, it's well to remember that another Icelandic volcano erupted in 1783-84, almost shutting down Europe completely, and causing problems that helped spark the French Revolution. Guardian. (Hat tip to Nebraska artist Lia Machel for pointing this article out.)

(Comments: For reader comments, questions and discussion, see the 9-May-10 News -- Europeans to make historic announcement to stop global panic thread of the Generational Dynamics forum. Comments may be posted anonymously.) (9-May-2010) Permanent Link
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8-May-10 News -- World markets continue to deteriorate

Tensions worsen between North and South Korea over warship sinking

Thursday's stock market plunge baffles Wall Street

The attempted explanations for what happened on Thursday have continued to be comical.

According to The Hill, the White House doesn't rule out sabotage in Thursday's market fluctuation. And I started laughing hysterically when I heard Fox News Channel's Bill O'Reilly say, "There's no question that the market was manipulated, but the guys behind it are far too smart to get caught."

The thick-headedness of these people is that they have learned nothing from the millions of panics that have occurred throughout all times and places in history, and the conceit of these people is that they think they're smarter than their grandparents, whom they think of as doddering old fools who were too dumb to avoid panics. What they forget is that their grandparents were young once, just as thick-headed and conceited, and also considered their own grandparents to be doddering old fools.

That there was simply a good old-fashioned panic going on on Thursday is perfectly obvious, for the reasons that I explained yesterday. With the Greece crisis triggering market plunges around the world, there are no people with enough superpowers to manipulate what's going on. The whole idea is moronic.

There were more sophisticated arguments being bandied about on Friday to explain the plunge. I understand the argument to be the following: Someone with "fat fingers" at Citibank accidentally typed a "b" (for billion) rather than an "m" (for million), placing a huge sell order for Proctor & Gamble stock. The New York Stock Exchange (NYSE) automatically enacted a 60-90 second trading halt because of some rule designed to prevent panics, and so the trade ended up being fulfilled at the Nasdaq stock exchange, rather than the NYSE.

So there's plenty of opportunity for finger-pointing in this fantastical scenario. In particular, the NYSE blames the Nasdaq for not enacting a similar 60-90 second trading halt. But the Nasdaq people respond that it was the 60-90 trading halt second that actually CAUSED the 1000 point plunge, because people panicked when trading was halted. Citibank responds that there was no "fat finger" error, and the NYSE claims that all of their computer software was working correctly.

There will be multiple investigations, and it may well be that someone will come up with a "cause" -- perhaps someone's fat finger, perhaps something else. But this result will confuse a cause with a trigger. People in financial markets around the world are extremely anxious. The mood is right, the time is right for a panic, and all it will take is the right kind of trigger. But a trigger is not a cause, and if one trigger had not occurred, then some other trigger would have had the result.

Worldwide markets continue fall as leaders look for solutions

A couple of weeks ago I wrote that, based on surging bond yields and CDS prices for Greece and Portugal, there was already a panic in progress. Since that time, the panic has been spreading. The euro currency has been crashing, while the dollar currency has been strengthening. This week, markets on Wall Street and in Europe and Asia have been plunging. The fire that started in Athens is quickly spreading around the world.

It's seems like months ago, but it was only six days ago that European officials agreed on a 110 billion euro bailout of Greece that was supposed to "restore confidence" to the markets and stop the crash. Today, this bailout seems completely irrelevant.

European officials are meeting again this weekend. On Friday, they agreed to set up some sort of emergency stabilization fund to stop Europe from falling into the abyss.

There's no doubt that they're feeling a sense of desperation. The Telegraph quotes Silvio Berlusconi, the Italian prime minister, as saying that Europe is "in a state of emergency," as indeed it is. Europe's 27 finance ministers will meet on Sunday to see what they can do.

The article also indicates that the Bank of Japan has said it would inject $20 billion of liquidity into the markets to forestall a further crisis.

President Barack Obama has also gotten involved. He spoke with German Chancellor Angela Merkel on Friday morning, and promised his cooperation. VOA News quotes him as saying, "We agreed on the importance of a strong policy response by the affected countries and a strong financial response from the international community." You can always count on some fine words from these politicians.

One thing that I've learned in the past three years is that government officials can use central banks loans, quantitative easing, and fiscal stimulus programs to postpone problems for a long time, and even create a new stock market bubble, as has happened in the last year. Maybe the Europeans will come up with something this weekend, but with the failure of the Greek aid program, it really looks to a lot of people like they've run out of bullets.

As I've said many times, Generational Dynamics predicts a massive financial crisis with absolute certainty. It remains to be seen whether the Europeans can kick the can down the road one more time.

North/South Korea tensions continue to rise over warship sinking

It's now been six weeks since the South Korean warship Cheonan was sunk on March 26 by an explosion, killing 46. South Korean leaders have carefully avoided accusing the North of being responsible for sinking the warship, for fear that saying so would compel them to a declaration of war. Investigative teams from Korea, the U.S., and other countries have been collecting evidence, and they've now almost conclusively proven that the sinking was caused by a torpedo exploding beneath the ship. It's believed that the torpedo could only have come from the North Korean military.

The situation has caused considerable political friction within South Korea itself. In a perverse twist of logic, the Seoul government is considering criminal prosecution of opposition political leaders who are claiming that the administration of president Lee Myung-bak has been hiding evidence about the Cheonan sinking. The defense ministry called these comments "groundless and politically motivated," and filed a complaint with the prosecution.

If a war between North and South Korea is to be avoided, it will have to be done through the mediation of the Chinese. On Friday, president Lee said that he expects China to accept the results of the investigation of the Cheonan sinking, and to play an "appropriate role," according to the Korean Yonhap news service. This means that the S. Koreans will expect the Chinese to punish the North Koreans.

The Chinese are caught in the middle. North Korea is China's favorite indulgence, but the South Koreans are going to get military revenge if the Chinese don't cooperate in punishing the N. Koreans, as we reported a few days ago. (See: "4-May-10 News -- S. Korea considers military options against N. Korea.")

Another bizarre twist occurred this week, when North Korean president Kim Jong-il returned from a train trip to Beijing, where he met with Chinese president Hu Jintao. Out of that meeting came the announcement that the North Koreans would suddenly like to resume nuclear reduction talks, according to Yonhap. This is really a big joke, presumably a distraction ploy.

The tension grows each day. Nobody wants a war between North and South Korea, but nobody wants North Korea to be able to get away with this for free.

The South Korean army is going to take some unilateral actions, according to an analysis in the Asia Times. The S. Korean military will extend its patrolling in the portion of the Yellow Sea that North Korea claims, and in case of a confrontation, the S. Korean military will launch a counter-attack immediately. For the South Korean military, the sentiment is "never again."

Additional links

Beijing officials have been trying to cool down China's growing real estate and economic bubble by making it more difficult to borrow money, but the biggest developers are circumventing the restrictions by borrowing from Hong Kong banks. Taiwan's China Post

Lack of enough sleep poses a "death risk," according to UK and Italian researchers. BBC

For techies: The best free software of 2010. PC Magazine

Nasa launched the Voyager 2 spacecraft on August 20, 1977, and it's still working after traveling 8.6 billion miles in 33 years. However, its communications have become erratic in the last couple of months, and engineers are trying to diagnose and fix the problem.

Does body spray make you irresistible to women? ABC News

Brazil has signed the Nuclear Nonproliferation Treaty, under which it's allowed to enrich uranium for peaceful purposes, but it's now suspected of developing nuclear weapons in secret. Spiegel

Hidden in the new health care bill is a massive, hidden tax change that will hit small businesses next year. CNN Money

(Comments: For reader comments, questions and discussion, see the 8-May-10 News -- World markets continue to deteriorate thread of the Generational Dynamics forum. Comments may be posted anonymously.) (8-May-2010) Permanent Link
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7-May-10 News -- Euro and stocks get hammered as ECB rejects 'nuclear option'

Greece approves austerity package, amid somber protests

What was the cause of the Dow's 1000 point drop?

Dow Industrials, 6-May-2010. High = 10879, low=9869. <font size=-2>(Source: NY Times)</font>
Dow Industrials, 6-May-2010. High = 10879, low=9869. (Source: NY Times)

The Dow Jones Industrial Average plunged hundreds of points for a while on Thursday afternoon, attaining an almost 1000 point drop at one point. At that point, bargain hunters came into the market, convinced that stops were "incredibly cheap" (as one financial pundit I heard said). At the end of the day, the Dow Industrials were down "only" 348 points.

Some pundits are claiming that the plunge was caused by some kind of computer glitch. Bloomberg quotes a New York Stock Exchange spokesman as blaming the guys over at the Nasdaq exchange.

"There were a number of erroneous trades Our guys just told me Nasdaq is investigating the erroneous trades. What happened today in P&G for instance, the bad print was on Nasdaq, not here." The reference to P&G was a 37% plunge in Proctor & Gamble stock prices.

These claims seem almost comical. There was clearly a panic going on.

At the height of the panic, around 2:45 pm ET on Thursday, I heard the following from the Bloomberg TV financial news reporter Adam (I didn't get his last name):

"I just tried calling several trading desks. They would not pick up the phone. They said, 'I can't talk, I'm flooded with orders.' And that's what you're seeing. Guys are selling indiscriminately. If you have money in the market, and you've made money, then you have to sell right now, it doesn't matter. You don't care what the bid is, you just want out, you've got to protect what you've got.

Look, it was only 14 months ago that this thing was at the low, and you have to protect what you have. That's what it boils down to. ...

The mindset is 'Get me out!' As one trader said -- I spoke to him, one of the few who would pick up for me -- he said, I'm selling stock for a guy right now. I called and I said, 'I do have a bid.' And the guy said 'Sold!' And I said, 'But you don't know what I'm buying.' He said, 'I don't care. There's a bid. That's all I want. I'll sell anything. Just show me a bid.' That's what it boils down to."

In fact, the plunge was not a surprise to some traders. Higgenbotham, in the Generational Dynamics forum, says: "The market had been showing weakness since last evening. I e-mailed my broker before the crash, warning him the S&P could drop 30 points in a short period of time if 1150 gave way." As it turned out, the panic began shortly after the S&P index fell below 1150.

The fact that the plunged wasn't CAUSED by a computer glitch doesn't mean that computers didn't play an important role, in what some analysts are calling a "computer rout," according to Bloomberg.

It's worth remembering that in the 1929 crash, when everything was being done manually, the stock exchange was backed up for hours, before all the trades could be settled. Today, computers settle the trades quickly, but computers also generate orders much more quickly as well, so that a panic can take place at the speed of light, rather than just at the speed of a human.

I'm always reminded of a saying that I first started hearing in the 1970s: "To err is human, but to really f--k things up takes a computer."

As regular readers of this web site are well aware, Generational Dynamics predicts that a major stock market crash is mathematically certain.

The reason is that the stock market has been overpriced by a factor of 150%-200% since 1995. By the Law of Mean Reversion, they must fall to Dow 3000 or lower for a roughly equivalent length of time. See "How to compute the 'real value' of the stock market." This is an absolute certainty, if not now, then at some time in the near future.

The European Central Bank rejects the 'nuclear option'

A lot of people are blaming the panic on Jean-Claude Trichet, president of the European Central Bank (ECB).

Thus, Bloomberg quotes one analyst as saying, "The ECB can fix this instantly by doing what the Fed has done -- instantly providing liquidity by buying bad fixed-income instruments and paying cash in U.S. dollars. The reason the market is horrified now is Trichet said it’s not even being discussed. Smart investors are basically selling risk assets."

This is what the Europeans are calling the "nuclear option" -- purchasing vast amounts of toxic assets from Greece, Portugal, Spain and other eurozone countries, similar to the Fed's TARP (troubled asset recovery program). Trichet had been expected to announce such a program at his press conference on Thursday afternoon, but instead he retained very conservative ECB policies.

This option would have required the ECB to "print money" -- issue almost $1 trillion of its own debt -- and use that money to purchase the assets.

An analysis by the NY Times indicates that this kind of explosive move would be almost politically impossible in Europe, because of national rivalries, especially opposition by the Germans.

According to the article,

"It is not really about money," said Timothy Congdon, an economist and professed euro skeptic who foresees an exodus of savings from banks on Europe’s periphery to Germany as doubts build about these countries' staying power in the Eurozone. "It is about how much pain the people in periphery can stand in order to keep this thing going. Once the confidence is gone, and Greeks and Spaniards move their deposits to Frankfurt, it becomes a self-fulfilling prophecy, and the whole thing implodes."

Congdon concludes that the ECB is under the influece of Germany, which firmly opposes this type of expansive policy, which would only weaken the euro currency.

Euro collapses vs the dollar, since Monday of this week <font face=Arial size=-2>(Source:</font>
Euro collapses vs the dollar, since Monday of this week (Source:

Unfortunately, Trichet's strategy isn't working, as the adjoining graph shows. The value of the euro against the dollar has been falling since last year, and has been falling rapidly this week, once it became obvious to investors that the latest EU non-bailout bailout of Greece wasn't going to help.

Greece is at the 'edge of an abyss'

The bodies of three people, one of whom was a pregnant woman, were pulled from the charred remains of the bank that had been firebombed by leftist protestors on Wednesday. The deaths shocked the nation.

Kathimerini quotes Greece's president Karolos Papoulias as summing up the situation as follows: "Our country has reached the edge of the abyss. It is everybody’s responsibility that we do not take the step toward the drop. Responsibility is proved in action, not in words. History will judge us all."

Much of the financial world was riveted on televised scenes from the streets of Athens on Wednesday, and many blame Thursday's Wall Street plunge on continuing violence in Athens by those protesting the austerity requirements of the bailout. However, Athens was much more somber on Thursday than on Wednesday, and the crowds were much smaller, according to the Times Online.

The debate in the Greek parliament was over whether they should agree to the austerity demans of the EU -- cutting spending, and raising taxes. The socialist government of Prime Minister George Panandreou criticized the protestors, saying, "neither rocks nor violence will get Greece out of the guardianship" of the EU.

Conservative opposition leader Antonis Samaras said, "The dose of the medicine you are administering is in danger of killing the patient. You know that these measures have sparked a social explosion. The citizens of this country have to believe there is a way out. Because whoever cuts pensions of €700 cannot convince anyone."

All this happened while protestors were outside, demanding that the austerity bill be rejected.

However, prime minister Papandreou carried the day by saying that there was no alternative. "Today things are simple. Either we vote and implement the deal, or we condemn Greece to bankruptcy." The parliament passed the austerity bill.

It's remarkable that these events, which would normally be avoided by anyone outside of Greece, had suddenly become the focus of worldwide attention. As always, Generational Dynamics focuses on the behaviors and attitudes of large masses of people, and large masses of people around the world followed the situation in Athens very closely. This shows how much the world has become anxious about the situation in Greece, and how they feel that it will affect their own personal lives.

And indeed, the Greek "contagion" is having an effect far beyond Greece's borders. As we pointed out a couple of weeks ago, Europe is in the midst of a full-scale panic. Nothing that's happened since then has had any effect, other than to accelerate the panic and resulting deterioration.

An analysis by Reuters points out that a wider euro debt crisis is almost certainly coming soon. The article points out that bond prices in Spain and Portugal have been collapsing, although they haven't yet reached Greece's low point. European banks already refuse to lend money to Greek banks, and the big danger right now, according to the article, is that the same fate will happen to banks in Portugal, Ireland and Spain.

The contagion is spreading to Asia as well. As I'm writing this on Thursday evening (Friday morning in Asia), stock prices have fallen sharply.

It's altogether possible that the panic that we saw on Wall Street on Thrusday is just part of the "contagion" that began in Greece. If so, then we can expect a lot more carnage in the days to come.

Additional links

A big nationwide real estate developer in China is offering a 15% discount on property across the country. I heard China expert Jim Chanos on CNBC say that was a very big story. It could be a sign that China's real estate bubble is finally crashing. The Shanghai stock market has fallen sharply as a result. China Daily

More than 2,000 babies have been born to women who lost their children in China's 2008 Sichuan earthquake. China had relaxed the "one child" rule for these women. Radio Australia News

Taiwan's president Ma Ying-jeou had to back off of a recent statement saying, "we will never ask the Americans to fight for Taiwan." China Post

The CIA has received secret permission to use unmanned drones to attack a wider range of targets in Pakistan's border region. This is a significant expansion. LA Times

(Comments: For reader comments, questions and discussion, see the 7-May-10 News -- Euro and stocks gets hammered as ECB rejects 'nuclear option' thread of the Generational Dynamics forum. Comments may be posted anonymously.) (7-May-2010) Permanent Link
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6-May-10 News -- Deadly riots in Athens shock the world

European officials search desperately for a way to stop the approaching meltdown

Three die in violent 'anti-austerity' riots in Athens

Athens rioting: A Molotov cocktail explodes among a group of riot police <font face=Arial size=-2>(Source: Independent)</font>
Athens rioting: A Molotov cocktail explodes among a group of riot police (Source: Independent)

Three people were killed when left-wing demonstrators burned down a bank by throwing a petrol bomb. The Independent reports that over 100,000 protestors filled Athens streets to protest the austerity measures -- spending cuts and tax increases -- imposed on Greece in return for the promised aid package from the European Union and the International Monetary Fund (IMF).

These kinds of riots go on in various countries around the world without drawing as much attention. For example, similar riots in Thailand and Kyrgyzstan have been reported in the press in recent months, but without the massive worldwide public interest.

The interest in this case is caused by the fear that the riots will mean the collapse of the aid package, with follow-on effects causing financial crises in other eurozone countries and around the world. In particular, the violence may completely torpedo the aid package to Greece, leading to immediate default that would quickly spread to other countries.

There are two possible directions that this violence can go.

In some cases, these kinds of deaths cause everyone to pull back from violence and take another path. We've seen this in Thailand for example.

In other cases, the violence feeds into more violence.

The protestors have made it clear that they will continue their protests, but in the next few days we'll see whether the protests become more peaceful or more violent.

Officials fail to halt meltdown of euro currency

As we've been saying lately, portions of Europe's economy are in the midst of a full-scale panic and crash.

There have been a series of attempts by European officials to halt the meltdown by offering various different types of aid to Greece, although in most cases the "aid" was nothing more than words, as we've frequently reported.

This past weekend, Greece was offered 110 billion euros of aid, with the intention of stopping the financial deterioration of the eurozone. But it was as unsuccessful as the previous attempts. On Wednesday, the euro currency fell to below $1.28, it's lowest value against the dollar in 14 months. It was $1.45 at the beginning of this year. Yields on Greek 2-year bonds are around 15%, indicating that investors believe that a default has a very high probability.

The Greek "contagion" is spreading to other countries. According to Reuters, Moody's Investors Service says that a downgrade of Portugal's credit rating is likely. Interest rates on Spanish debt reached their highest levels since the launch of the euro, according to the Telegraph.

The article quotes Marco Annunziata, Europe economist at UniCredit, as saying:

"Contagion pressures continue to rage unabated. The flames have rushed through the firewall of the IMF/EU programme for Greece and now threaten other peripheral countries.

While the sell-off on sovereign bond markets so far remains discriminating, the risk that it might suddenly mutate into irrational panic can no longer be ignored. Eurozone policymakers need to take further steps quickly."

These are strong words, much stronger than might have been heard even a week ago, but they represent the increasingly desperate level of concern of analysts over a potential meltdown -- specifically in the form of a panic.

At the center of the controversy is Germany, the strongest economy in Europe, and chancellor Angela Merkel, who is increasingly being blamed for "causing" the problem by dithering too long.

Merkel is faced with the problem of convincing the Bundestag (parliament) to support the aid package for Greece, particularly Germany's 25 billion euro contribution to the package. She's quoted as saying:

"Nothing less than the future of Europe is at stake. The happy tale of German history since World War Two and our emergence as a free, united, and strong country cannot be separated from the European Union. We owe decades of peace and prosperity to the understanding of our neighbours. Europe today is looking to Germany. As the strongest economy in Europe, Germany has a special responsibility and it takes this responsibility to heart.

Immediate help is needed to ensure the financial stability of the eurozone. This must be done to avoid a chain-reaction to the European and international financial system, and contagion to other eurozone states. There is no alternative."

It's worthwhile to pause for a moment to explain why I focus on quotes of this sort.

Generational Dynamics studies changes in attitudes and behaviors of large masses of people, entire generations of people. These two quotes are important because they reflect major changes in attitudes among Europeans in just the past two weeks. These indicate that Europeans are increasingly anticipating the full-scale crash that Generational Dynamics has been predicting for some time. It's the desperate nature of these quotes that's significant.

The desperation is buttressed by more sober analyses.

Last week I quoted highly respected financial columnist Wolfgang Münchau as predicting that Greece would default next year, not this year. I pointed out that there was a logical inconsistency in this statement: If investors believe that Greece will default next year, then they won't want to invest in Greece this year, and so Greece would default this year.

Now Münchau has a new analysis in EuroIntelligence:

"The numbers still do not add up

The aim of the rescue package agreed for Greece cannot conceivably have been to prevent a default. For all the daunting austerity and structural reform it requires, the numbers do not add up. The main purpose I can detect is to reverse the rise in Greek bond yields and stop contagion.

We should not knock this deal from Athens. The eurozone might not have survived otherwise. This column would have been an obituary. I am also glad to note that those in charge gave a positive answer to a question I posed last week, which was whether the authorities would ever get ahead of the situation. They did, and they deserve credit.

But in spite of the readiness to accept extreme austerity, Greece will not get by without some form of debt forgiveness. I can understand why the International Monetary Fund and the European Union did not want to open that can of worms at this point. It would have prolonged the negotiations. In the middle of an acute bond market crisis one has to manage expectations very carefully.

A debt restructuring will eventually be necessary, however, because Greece’s debt to gross domestic product ratio is going to rise from its current 125 per cent to about 140-150 per cent during the adjustment period. Without restructuring, Greece will end up austere, compliant, and crippled."

This analysis pretty much rips apart all the assumptions that we're hearing from politicians and other analysts. And once again, we have the same logical inconsistency: If Greece is going to default (debt will require restructuring) in the future, then investors will not invest in Greece today.

With that in mind, let's go back to what Merkel said: "Immediate help is needed to ensure the financial stability of the eurozone. This must be done to avoid a chain-reaction to the European and international financial system, and contagion to other eurozone states. There is no alternative."

But in fact Münchau's analysis indicates that the "immediate help" does absolutely nothing to ensure the financial stability of the eurozone, or to avoid a panicked chain reaction. Since the aid package will have no effect on the outcome in Greece, it cannot have any effect on the outcome in the eurozone.

And we're seeing this in action. The violence in Athens means that the required austerity package may be watered down. The weakness of Greece has already spread to Spain and Portugal, and worsens by the day. And an analysis in Financial Times indicates that there's increasing concern of a default in Italy. And Merkel has already made it clear that the situation in Greece was unique, and bailout will not be repeated for these other countries.

As we've said several times in the last couple of weeks, there's only one desperate measure left, what the Europeans call the "nuclear option." This means that the European Central Bank (ECB) will issue hundreds of billions of euros in new debt ("print money"), and use the money to aggressively purchase bonds of eurozone countries. This would effectively bail out the individual countries, and prevent them from defaulting, but it's quite possible that ECB will then be in danger of default.

As regular readers of this web site know, from the point of view of Generational Dynamics, there's little doubt where this is going. Europe and the world are headed for a major financial crisis, worse than in the 1930s. Right now, readers should be aware that the rapidly deteriorating situation in Europe means that this crisis may be very close.

Additional links

The ten best geek characters in mainstream movies. The winner: Indiana Jones. Wired

Another sign of political realignment: A surge of black Republicans are running for Congress, the greatest number since Reconstruction, as an unexpected consequence of President Obama's election and the rise of the Tea Party. NY Times

Explosive traces have been found on debris from the sunken South Korean warship Cheonan. This confirms that the explosive that sank the Cheonan came from a torpedo, further implicating North Korea. AFP

(Comments: For reader comments, questions and discussion, see the 6-May-10 News -- Deadly riots in Athens shock the world thread of the Generational Dynamics forum. Comments may be posted anonymously.) (6-May-2010) Permanent Link
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5-May-10 News -- Financial markets volatile as Europe considers the 'nuclear option'

Shadow inventory indicates there'll be another leg down in housing prices

World markets volatile as Europe considers the 'nuclear option'

Last week I wrote that there was full-fledged panic in progress, as Greek bond prices were crashing, with a "contagion" effect on Portugal and the euro.

Sunday's non-bailout bailout of Greece was supposed to stop the panic, but it didn't.

Then on Monday, the European Central Bank (ECB) took the first step to invoking the "nuclear option" ("quantitative easing" through aggressive purchasing of countries' bonds) by allowing Greek junk bonds to be used as collateral in credit operations, according to an ECB press release.

One important measure of the level of panic is the prices of credit default swaps (CDSs) for Greek debt. Recall that a CDS is a kind of insurance policy that pays off if the underlying debt defaults. In "normal" times, a typical CDS price is $10-25,000 to insure $10 million of debt.

CDS prices on Greek debt dipped slightly on Monday, because of the aid package, but by Tuesday they were back up to the astronomical level of 725bp, according to FT Alphaville, meaning that it will cost $725,000 to insure $10 million of Greek debt.

More worrisome is that the panic is spreading to other euroland countries. The following graph shows what's happening to CDS prices for Portugal and Spain:

CDS prices for debt from Spain and Portugal, Nov 2009 - present <font face=Arial size=-2>(Source:</font>
CDS prices for debt from Spain and Portugal, Nov 2009 - present (Source:

This graph shows dramatically how CDS prices are spiraling out of control for Portugal and Spain, as they follow Greece's path.

Markets around the world fell 2-3% on Tuesday. Financial pundits that I heard give various reasons:

These are plenty of negatives weighing on the world's markets.

Considering the 'nuclear option'

Balancing all of those negatives there's only one potential "positive," and that's the "nuclear option," a form of massive quantitative easing.

If the ECB exercises this option, it will "print money," and use the money it creates to aggressively purchase bonds from several euro countries. An FT Alphaville analysis indicates that the ECB is indeed considering this option. ECB president Jean Claude Trichet was quoted as saying, "At this stage, we have absolutely no decision on the purchase of government bonds," and his use of the phrase "at this stage" in the past has meant that a change of policy was being considered.

According to the article, an increasing number of analysts believe that the nuclear option is the only way to keep the Greek contagion from spreading.

"Oh dear. Whilst one day’s trading does not necessarily indicate a trend, I would bet that there are a lot of very worried EU officials this afternoon," says Gary Jenkins of Evolution Securities. "In the poker game between the markets and the EU the former has consistently asked to see the latter's hand, and with the €110bn 3 year package the EU was no doubt hoping that it was game over. But maybe not."

Jenkins also points out that "About the only thing the EU has left up its sleeve is to ask that the ECB buy bonds in the market. However this would have to be in significant size to have any real impact."

Commentary from the Royal Bank of Scotland argues that the ECB should take this step right away, rather than wait for the situation to get worse.

Back in August, 2007, I posted the article, "The nightmare is finally beginning."

That was when the global credit crisis began, and it appeared that the crisis would spiral out of control. That's when Fed chairman Ben Bernanke announced a small reduction in the Fed funds rate, and that's all it took to allow the stock market bubble to continue growing for another month, going above Dow 14,000.

Those were the good old days, because the solution was so simple. But as we've gone from one crisis to another, each significantly more serious than the previous one, it's been necessary to do a lot more than just make an interest rate reduction. Particularly after the Lehman Brothers bankruptcy in September, 2008, governments around the world implemented huge stimulus and quantitative easing programs, resulting in a renewed stock market bubble throughout the last year.

But as the current Greek crisis worsens, more and more people seem to agree that central banks have almost run out of ammunition. There's really only one weapon left, and that's a huge purchase of government bonds by the ECB.

The problem is that, once again, Generational Dynamics predicts that this cannot end the crisis, but can only postpone the crisis a little bit longer. Let me make a point that I've made several times before.

On Tuesday, the Dow Industrials fell over 200 points to just above 10,900. Everybody believes that this is a bad thing.

But it was just a little over a month ago that the the Dow ROSE to a price just above 10,900, and that was a cause for celebration. How could the same price be bad news today, when it was very good news a month ago?

The point I'm making is that there's no one that I hear on television or read in the financial papers ever addresses the question of what the Dow SHOULD be. Is 10,900 too high or too low? Should it be 11,000? 14,000? If so, then why not 20,000 or 100,000 or a million? Is there any reason why a million is any better or worse than 10,900? And would Dow 1 million be good news or bad news? What if it had been 1.1 million the week before?

And once you've accepted that a million is just as fair a price as 10,900, then you'd also have to agree that 9,000 is also a fair price. So is 8,000 or 5,000, or 1,000.

If you were investing in an apartment building, you could answer that question by estimating the rental income and expenses over time, and perform a present value computation to get the real value of the apartment building.

You can do the same thing with stocks by using price/earnings ratios. That's what I did in the article, "How to compute the 'real value' of the stock market." As that article shows, the stock market has been in a bubble since 1995, and is still overpriced today by a factor of almost 200%, so by the Law of Mean Reversion, there will be a stock market crash to a range below Dow 3000.

That's the reality of the situation. Stimulus and quantitative easing programs have postponed the inevitable, and they may or may not do so one more time in Europe, but it is mathematically certain that a major stock market crash is still to come.

The sound of angry Greek men

Giant banner near the Parthenon in Athens, hung by Greece's communist party
Giant banner near the Parthenon in Athens, hung by Greece's communist party

Demonstrators from Greece's communist party, KKE, took over the Parthenon on Tuesday, and hung the huge banner shown in the adjacent photo. Their apparent intention was to encourage all the people of the different countries in Europe to rise up with them in protest to the austerity measures imposed on Greece.

This is one of the reasons that many Europeans don't trust the Greeks, and why many analysts doubt that Greece will stick to the austerity measures that they've already agreed to.

In fact, there's been a lot of discussion on the BBC about why the Greeks aren't more grateful that they've been bailed out. Many people outside of Greece feel that they're going to suffer because of Greece's profligacy, and that they should at least receive a "thank you" for their sacrifices.

As FT Alphaville put it, referring to the Parthenon demonstration, "That, of course, follows Europe’s €110bn bailout pledge for Greece this weekend. Charming."

That article also referred us to the video of the song "Do You Hear the People Sing?" from the musical show Les Misérables.

This is a great song, and serves as our musical entertainment for today. Once you've heard it, then you too will be motivated to go out and start a revolution:

Military spending in Greece

A web site reader asks:

"What is your take on this comment "One of the most surprising parts of the IMF program is that it includes pledges by Greece to cut military spending, which the IMF didn't detail. The IMF rarely deals with military matters, which are considered the heart of a nation's sovereignty. In Pakistan, by contrast, the IMF had to sell its loan program to the military, said officials involved with the talks, by convincing prominent generals that a weakened economy would undermine Pakistan's national security." Its seems there is a plan in place to weaken the Hellenic Army?"

The issue with the Greek armed forces is Turkey. Greece is one of Europe's biggest arms purchasers, according to an analysis by the French news agency AFP, out of concern over a war with Turkey. However, the IMF has warned Greece that military spending must be "clearly reduced."

Orthodox Christian Greece and Muslim Turkey have been at war several times for centuries, most recently in the Mediterranean island of Cyprus in the 1970s. Even today, the island is split into two fortresses, one with Greek citizens and one with Turkish citizens.

Turkish Prime Minister Recep Tayyip Erdogan will visit Greece next week, with the goal of improving relations between the two countries. After all these centuries, it's doubtful that one meeting will make much difference.

Another leg down in the housing market?

According to the WSJ, there's plenty of reason to believe so.

Housing market inventory -  number of months to clear out existing real and shadow inventory <font face=Arial size=-2>(Source: WSJ)</font>
Housing market inventory - number of months to clear out existing real and shadow inventory (Source: WSJ)

As the above graph shows, it would now take 103 months (8 1/2 years) to sell off all the foreclosed properties in banks' possession.

As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to the article. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier.

That means that housing prices are certain to continue to fall. My own estimate, as I've stated before, is that they'll fall to 1990 prices.

Additional links

South Korea appears to be inching closer to blaming North Korea for the sinking of the warship Cheonan. On Tuesday, president Lee Myung-bak convened an unsual meeting of top military commanders, and vowed "clear and resolute measures" against those responsible. NY Times

For techies: How to stay anonymous online. PC Magazine

Al Gore has purchased a $9 million mansion in Montecito, Calif., with an "almost comical carbon footprint," indicating that he's probably giving up on the global warming movement. Pajamas Media

There are now numerous examples of how has become the internet's primary and rapidly expanding jihadi base. Jihadist groups are using it to take responsibility for terrorist attacks, and for training and propaganda. MEMRI

The "Red Shirt" demonstrators that have taken over Bangkok's retail district are willing to negotiate with Thailand's government officials over a proposed reconciliation plan involving early elections. However, the demonstrators want a much earlier date than the November date being offered. Xinhua

"Cash recycling machine" and "Slip and fall down carefully" are examples of signs in Shanghai in Chinglish, a Chinese version of English that results from poor translations of Chinese into English. A campaign in Shanghai seeks to eliminate these signs. NY Times

A U.S. military base on the Japanese island of Okinawa has become increasingly unpopular with the island's people. When Prime Minister Yukio Hatoyama was running for election last year, he promised to move the military base off the island. But now he's backtracking on that promise, and looking for a compromise plan.

Faisal Shahzad, the attempted Times Square car bomber, was born and trained in Pakistan, before he became a naturalized U.S. citizen. On Tuesday, Pakistan law enforcement agencies arrested Shahzad's family members living in Karachi. Dawn

Fallen arches are not a problem for most people, but in severe cases can be very painful, and require surgery. NY Times

Beautiful women are bad for your health. Telegraph

(Comments: For reader comments, questions and discussion, see the 5-May-10 News -- Financial markets volatile as Europe considers the 'nuclear option' thread of the Generational Dynamics forum. Comments may be posted anonymously.) (5-May-2010) Permanent Link
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4-May-10 News -- S. Korea considers military options against N. Korea

Thailand's 'red shirt' protestors consider a compromise proposal.

Military options are evaluated as evidence mounts that N. Korea sank warship

South Korea's Chosun news service quotes Defense Minister Kim Tae-yung as threatening North Korea with retaliation if it's proven that S. Korean warship Cheonan was sunk by a North Korean torpedo.

The Cheonan was sunk on March 26 by an explosion, killing 46. South Korean leaders have carefully avoided accusing the North of being responsible for sinking the warship, for fear that saying so would compel them to a declaration of war. Investigative teams from Korea, the U.S., and other countries have been collecting evidence, and they've found aluminum fragments that could have come from a torpedo, according to Chosun.

Meanwhile, the Korea Times reports that a U.S. diplomat, speaking on condition of anonymity, says that the U.S. government believes that a North Korean torpedo attack was the most likely cause of the sinking.

Kim Tae-yung's remarks, which reflect that anger of the South Korean people, together with the mounting evidence, indicate that some kind of military response cannot be too far off.

Several military responses of varying severity are being considered by South Korean and U.S. military forces. The response may involve both countries' militaries. According to Chosun, these are among the options being considered:

The military options could be used in conjunction with psychological warfar options, by re-installing the electronic bulletin boards and loudspeakers broadcasting toward the North along the demilitarized zone, according to the article. In addition, economic sanctions could be imposed.

According to Korea Times, South Korean president Lee Myung-bak will host a rare meeting with all commanding offices of the military on Tuesday, to discuss "what lessons the nation has learned" from the Cheonan sinking.

North Korea's Kim Jong-il visits Beijing

A lot of how this all plays out will depend on the actions of North Korea's great benefactors, the Chinese.

North Korean president Kim Jong-il is making a "secret" trip to Beijing, arriving on Tuesday. The trip was not announced by either China or North Korea, although China's People's Daily reported the visit by quoting foreign sources.

The purpose of the visit has not been announced, but it's not hard to infer some of the agenda items:

Tensions are very high among the three countries right now, and last word on the Cheonan incident has yet to be spoken.

Thailand's PM offers 'Red Shirt' protestors a compromise

Thailand's Prime Minister Abhisit Vejjajiva has offered a proposal to call for elections on November 14, a slight improvement on his previous offer of elections in December, about a year before his term ends.

The "Red Shirt" protestors, who have occupied and shut down a portion of Bangkok's retail district, are demanding elections within three months.

According to an analysis by Reuters, both sides want to be in power in September, for a scheduled reshuffling of military and police leaders.

The Red Shirts represent the poor, rural population that favors the return of former Prime Minister Thaksin Shinawatra. If the Red Shirts can gain power by September, then they might oust some of the generals allied with Thailand's elite that opposed Thaksin.

Some analysts have been predicting the outbreak of civil war if the situation is not resolved quickly. But, as we've written many, many times, Thailand is in a generational Awakening era. This means that there can be spurts of violence, but a full-scale civil war is impossible.

Additional links

The approval rate for Japan's Prime Minister Yukio Hatoyama has plunged to 20.7%, according to a new survey. Japan Times

Polls show that German Chancellor Angela Merkel's governing coalition parties are going to suffer massive losses in the May 9 elections. The German people still do not want to bail out Greece, but are resigned to the fact that they have no choice, and they blame Merkel. CNN

(Comments: For reader comments, questions and discussion, see the 4-May-10 News -- S. Korea considers military options against N. Korea thread of the Generational Dynamics forum. Comments may be posted anonymously.) (4-May-2010) Permanent Link
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3-May-10 News -- EU announces another non-bailout bailout of Greece

Tra-la, it's May, the lusty month of May

Greece is granted a non-bailout bailout by the EU and IMF

Look, I don't know what's going on, but I've read all the news reports and this seems to be a repeat of what we've already seen several times in the last few months.

There are the usual popping champagne corks, the ebullient cries of politicians congratulating each other, and cheerleading financial reporters announcing that the worst is over, and there's no reason why the stock market bubble can't continue to grow.

The other thing that's the same is that there are absolutely no commitments from anybody. The announcement said that 100 billion euros will be loaned to Greece, but the form in which it will be provided was apparently not announced. Nor was it announced when it will be repaid.

And then there's this from the Bloomberg report:

"About two-thirds of the funds will come from Greece’s 15 euro-area partners, which must still sign off on the disbursement by a unanimous decision."

Huh? This deal has to be approved by 15 countries?? Does anyone really think that's going to happen automatically?

In fact, Germany's DPA press service points out that the EU has NOT approved the deal, and that there'll be a meeting on Friday to decide WHETHER to approve the deal.

And elsewhere you read that the members of the board of the International Monetary Fund (IMF) have to approve the deal. According to Reuters, the IMF approval will be "fast-tracked," and "The financial numbers ... are going to be big, they are going to be unprecedented." Is that really a sure thing?

And oh, one more thing. The Greek parliament are going to have to approve a brutal 30 billion euros of budget cuts, requiring the loss of many public sector jobs. Is that really going to happen? Bloomberg reports that unions representing 500,000 civil servants will be calling a 48-hour strike on Tuesday, and a general strike is planned for Wednesday.

Look, maybe I'm wrong this time. Maybe all the puzzle pieces will fall into place this time. We should know within a few days.

Debts of the PIIGS countries

One of the major motivations of the EU and the IMF to bail out Greece is that failure to do so could cause a chain reaction of defaults. The PIIGS countries (Portugal, Ireland, Italy, Greece and Spain) are highly intertwined in debt relationships, and a default in one could cause defaults in others.

The following NY Times graphic shows the debt relationships between the five countries:

Indebtedness of the fives PIIGS countries to each other and to Britain, France and Germany. Arrow widths are proportional to debt amounts. <font size=-2>(Source: NY Times)</font>
Indebtedness of the fives PIIGS countries to each other and to Britain, France and Germany. Arrow widths are proportional to debt amounts. (Source: NY Times)

Tra-la, it's May, the lusty month of May

May Day has been a day of celebration for centuries, a day to welcome the coming of summer. In the United States in the 1800s, it became associated with the labor movement, and in 1917 it was appropriated by the Russians for the Bolshevik Revolution. Since then it's been mostly associated with labor movements and communists, but many countries still celebrate it as the beginning of summer.

May Day parade in Istanbul, Turkey, organized by trade unions, and featuring songs and celebrations. <font size=-2>(Source: AFP)</font>
May Day parade in Istanbul, Turkey, organized by trade unions, and featuring songs and celebrations. (Source: AFP)

In Cuba, there was a traditional communist-type May Day, as hundreds of thousands of Cubans marched through Revolution Plaza in Havana on Saturday. AP says that, with Fidel Castro ill, Cuban officials wanted to prove to Washington that the communist revolution is still alive.

Turkey, for example, is Russia's historical enemy, but still recognizes May Day as a gala celebration sponsored by labor unions. Tens or perhaps hundreds of thousands of people marched into Taksim square in Istanbul on Saturday. According to AFP, they're commemorating the events of May Day 1977, when authorities fired on the crowds, killing some.

However, Turkey hasn't been as greatly affected by the financial crisis as some other countries, and so Turkey's Zaman didn't mind gloating a little by pointing out that "Hundreds of thousands of people joined May Day rallies across Europe on Saturday, many protesting against government austerity policies in the wake of the global financial crisis. In Greece, protesters burned garbage cans and set a TV van on fire."

For today's musical entertainment, here's a a recording of the great Julie Andrews in her prime singing "The Lusty Month of May" from the Broadway show Camelot.

Additional links

18 businesses were damaged in a violent May Day protest in Santa Cruz, California. AP

The International Crisis Group is predicting a civil war in Thailand, where prime minister Abhisit Vejjajiva has announced that he plans to end the demonstrations that have shut down the shopping district. However, regular readers of this web site are very well aware that a civil war is impossible, or if one begins it will fizzle quickly, because Thailand is in a generational Awakening era. Australian Broadcasting

We've reported that the "Maoist" or "Naxal" terrorists have practically declared war within India. (See "8-Apr-10 News -- India reacts to Tuesday's Maoist attack.") Naxalites have shut down much of Nepal with massive demonstrations and a general strike. Guardian

Ever since King Henry VIII formed the Church of England (or Anglican Church), breaking from the Catholic Church so that he could get divorced and marry Anne Boleyn (whom he later beheaded), the two Churches have had a "friendly rivalry." Now there are rumors that three traditionalist Anglican bishops are considering converting to the Catholic Church, because of their opposition to the ordination of women and their opposition to liberal Anglican views on homosexuality. Irish Times

Egypt's blockage of Gaza is causing Hamas to be short of cash, causing a backlash against Hamas' hold on power. AP

Nasa's next Mars rover may have 3D cameras, thanks to help from Avatar director James Cameron. Information Week

Bankers are not the only ones gouging the public and paying themselves million dollar bonuses. Lawyers and accountants have racked up almost $1 billion in fees and expenses dealing with the Lehman bankruptcy. NY Times

Iran and the U.S. are poised for a confrontation at the Nuclear Non-Proliferation Treaty conference, opening at the United Nations in New York on Monday. Iranian President Mahmoud Ahmadinejad will be attending. Washington Post

(Comments: For reader comments, questions and discussion, see the 3-May-10 News -- EU announces another non-bailout bailout of Greece thread of the Generational Dynamics forum. Comments may be posted anonymously.) (3-May-2010) Permanent Link
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2-May-10 News -- Israelis and Palestinians to resume indirect talks

Westerners in New Delhi warned of possibly 'imminent' terrorist attack

Arab League approves Mideast 'proximity talks' to begin next week

The phrase "proximity talks" refers to talks between opposing parties indirectly through an intermediary.

Proximity talks between Israelis and Palestinians were supposed to begin a couple of months ago, but they were derailed by an Israeli announcement that 1600 new Jewish settlements would be built in east Jerusalem.

On Saturday, the 22-nation Arab League, meeting in Cairo, endorsed the resumption of these indirect talks, according to Al-Jazeera. The endorsement is for "one last round" of indirect talks within a four-month deadline. The four-month period will be extended if the negotiations go well. It's not clear what the intended action will be if the negotiations don't go well.

The announcement came after Secretary of State Hillary Clinton that George Mitchell, the US special envoy to the Middle East, would travel to the Mideast to mediate the peace negotiations.

I realize that these peace talks are deadly serious for the people involved, but I have to chuckle, because these peace talks never lead anywhere, and can't possibly lead anywhere.

My first major prediction on this web site came in 2003, when the Bush administration announced the Mideast Roadmap to Peace. At that time, everyone thought that they could have side-by-side Palestinian and Israeli states by 2005, and that the only thing standing in the way of peace was Yasser Arafat, who was considered a terrorist.

I wrote that Arafat may well be a terrorist, but he was to some extent the only thing standing in the way of a wider Mideast war. He was in the generation that survived the genocidal war between Arabs and Jews that following the partitioning of Palestine and the creation of the state of Israel in 1948. Whatever acts of terrorism Arafat approved, he would have done anything to prevent a repeat of the 1948 war. (See "Mideast Roadmap - Will it bring peace?")

When Arafat died in 2004, there was worldwide rejoicing, because it was thought that now there would be an immediate peace treaty. And things did go pretty well -- for about a month. And then things started falling apart. I wrote about the situation frequently in 2005, and there was hardly a day that went by when things didn't get worse than they were the day before. And since then, 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 January, 2009.

It's been a while since the last war -- over a year!! -- so there's a lot of talk about a new war this summer between the Israelis and the Palestinians or Hizbollah, or even the Syrians and the Iranians. That's why the Arab League is willing to conduct peace negotiations after all -- even if they are "indirect."

But they're not going to bring peace. That's impossible; Generational Dynamics tell us so. And it's easy to see why. As I used to write all the time, the average age of the people in Gaza is around 16 years old. So what you have in Gaza is kids running around with guns and missiles. They don't give a shit what the old fogies in the Arab League, or even what the old fogie leaders in Hamas and Fatha think. They're like kids everywhere. They know what they have to do, and they're not going to let some doddering old fools tell them differently.

Shanghai world expo opens

The World Expo in Shangai will be running for six months. Over 70 million visitors from around the world are expected to vist the 170 or so country pavilions.

This AP video shows the opening ceremonies:

Those planning to visit the expo should be wary of the long queues and the hot Shanghai sun, according to the Telegraph.

Additional links

The U.S. Embassy in India is warning of possible "imminent" terrorist attacks on places in New Delhi where Westerners are known to congregate. Suicide attacks on markets are "especially attractive targets." Bloomberg

Far left-wing political columnist Paul Krugman gloats over the problems faced by Europe and the euro currency. NY Times

Thousands of Greeks took part in May Day rallies on Saturday, to protest the announced austerity cuts. I heard one demonstrator in BBC radio, complaining about the Greek government: "They steal the money, they borrow the money, they steal the money, now they borrow the money again, and they'll steal the money again." BBC

There are 621 "ghost estates" across the Irish Republic now, vacant blocks of homes left over from the housing bubble. One in five Irish homes is unoccupied. If the country immediately used them to house every person on the social housing list, there would still be hundreds of thousands left over. BBC

Bankers' salaries are astonishingly high, according to the chairman of the Royal Bank of Scotland. Independent

"We are wall Street. We are smarter and more vicious than dinosaurs, and we'll survive, even if you don't." FT Alphaville

President Obama gave a good speech about bankers, but it's disappointing that he's unwilling to use the F word -- "fraud" -- according to William K. Black, interviewed by Bill Moyers. PBS

Obesity has become a national security threat, because more than a quarter of young Americans are now too fat to fight. Washington Post

Americans are the gloomiest they've been about the economy in over four decades. By the way, for the record, I'm still the gloomiest person in the world. NY Times

"Bee rustlers" in Japan have been stealing bee hives, as the price of bees has skyrocketed. BBC

Friday was the 55th anniversary of the German announcement that Hitler was dead. The report said that he had "fallen at his command post in the Reich Chancery fighting to the last breath against Bolshevism and for Germany". It later came out that he had committed suicide. BBC

(Comments: For reader comments, questions and discussion, see the 2-May-10 News -- Israelis and Palestinians to resume indirect talks thread of the Generational Dynamics forum. Comments may be posted anonymously.) (2-May-2010) Permanent Link
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1-May-10 News -- China's intentions are questioned as Kim Jong-il ages

As EU officials meet, Greece's austerity requirements are revealed

S. Korean and Chinese leaders meet to discuss warship sinking

More evidence has been found that indirectly implicates North Korea in the March 26 explosion that sank the South Korean warship, the Cheonan, killing 46.

Since then, an international forensic effort has been mounted, involving experts from S. Korea, the U.S. and Europe. Now Xinhua reports that some suspicious metal and plastic pieces of debris have been collected, and analysis indicates that they are typical of materials found in a torpedo.

The Cheonan sinking has deeply saddened and angered the South Korean people, and South Korean President Lee Myung-bak has promised "resolute and unwavering" action over the warship sinking, once the investigation has been completed. Many people fear that the investigation will unambiguously point to a N. Korean attack, and that will result in a new civil war in Korea. It's thought that Lee is carefully avoiding accusing N. Korea of anything, to avoid being forced into a declaration of war.

On Friday, Lee met with Chinese president Hu Jintao in Shanghai, to have "serious discussions" over the sinking of Cheonan. Yonhap quotes Hu as offering "condolences and consolation" to the victims of the sinking.

Officials are watching China very closely, because they exert a great amount of influence of the North Koreans. If the investigation concludes that N. Korea was to blame, then Chinese mediation will be essential in preventing a war.

Moreover, talk of a possible complete collapse of the North Korean government has been increasing, according to VOA, because Kim Jong-il is becoming increasingly frail. He suffered a stroke two years ago, and his death would create a power vacuum that bitterly competing factions within the government would try to fill, leading to instability and possible conflict within North Korea itself.

What would China do in those circumstances? It's increasingly believed that China would attempt to annex North Korea, and take control of its rich mines and transport systems, according to WSJ. The CIA World Factbook lists Korea's natural resources as including coal, lead, tungsten, zinc, graphite, magnesite, iron ore, copper, gold, pyrites, salt, fluorspar and hydropower.

Newspapers in Seoul are increasingly reporting on concerns that the North is already becoming a Chinese colony, according to World Market Media, and that the Chinese have already started to take over North Korean ports and mining posts.

China is playing a dangerous game, however, since a collapse of North Korea's government could bring millions of North Korean refugees pouring into China itself, creating instability in the entire region.

Terms of Greece's austerity program are revealed, as EU officials meet

EU officials are meeting over the weekend to come up with a bailout package for Greece, so that the country's May 19 payment of 11 billion euros can be made. The final results are scheduled to be announced on Sunday.

In order to get Germany's agreement, Greece will have to agree to tough austerity measures. Euro Intelligence summarizes the demands, as leaked to the Financial Times:

The BBC quotes Greek Prime Minister George Papandreou on Friday as telling the parliament: "It is a patriotic duty to undertake this, with whatever political cost, which is tiny faced with the national cost of inaction... and indecision."

However, Greek public sector unions have announced plans for massive May Day riots and demonstrations on Saturday, to protest the austerity cuts.

China's World Expo 2010 opens in Shanghai

Chinese President Hu Jintao has opened Expo 2010, the Shanghai world fair.

Ships decorated with flags of participating Expo countries and regions line up on the Huangpu River as the fireworks show opens. <font face=Arial size=-2>(Source: Xinhua)</font>
Ships decorated with flags of participating Expo countries and regions line up on the Huangpu River as the fireworks show opens. (Source: Xinhua)

According to Xinhua, Hu says that the expo highlights China's growing confidence from rising economic clout and its increasing openness in the international community.

Additional links

News you can use: German and UK researchers have developed a "cuddle spray," a nasal spray that makes men more sensitive towards women and babies. BBC

Spain's unemployment rate has reached 20%. Spain's credit rating was downgraded earlier this week. BBC

The home-buyer tax credit expired on Friday at midnight. In the last few days, buyers have "gone nuts" to close deals before the deadline. WSJ

Some European banks may run out of cash and collapse, because many of them have been shut of out international lending markets because of the Greek financial crisis. FT

Double-digit food price inflation in India has been going on for over a year, and is causing hardships. NY Times

Muslims are angry at Belgium's new law banning the Burqa. Al-Jazeera

(Comments: For reader comments, questions and discussion, see the 1-May-10 News -- China's intentions are questioned as Kim Jong-il ages thread of the Generational Dynamics forum. Comments may be posted anonymously.) (1-May-2010) Permanent Link
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