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


Web Log - July, 2010


31-Jul-10 News -- GDP figures show economy is slowing

Israel bombs Hamas sites in Gaza

Disappointing GDP figures show that economy is slowing

On Friday, I actually heard someone on the BBC say, "America's fiscal engine might be running out of puff!" Those crazy Brits!

However, financial analysts and pundits, one after another, had exactly the same message. Thus, the Associated Press said, "The recovery lost momentum in the spring as growth slowed to a 2.4 percent pace, its most sluggish showing in nearly a year and too weak to drive down unemployment."

Two months ago, I wrote a report about an apparent worldwide decline in economies around the world, and that we appeared to be headed once again to a worldwide freeze in trade and transportation, just as happened at the end of 2008. (See "7-Jun-10 News -- Globally, May was a month of ominous events.")

Friday's GDP report confirms this trend. The May and June figures translated into an economy that was slower in Q2 than it was in Q1.

According to the Consumer Metrics Institute,

"The 2.4% figure will garner all of the headlines, but the more important "real final sales of domestic product" continues to be weak, growing at a reported 1.3% annualized rate. The real cause for concern is that the reported inventory adjustments dropped from a 2.64% component in the revised 1st quarter to a 1.05% component during the 2nd quarter. If factories have begun to realize that end user demand remains anemic, the inventory adjustments could well go negative soon, pulling the reported total GDP down with it."

In other words, the reason that the Q1 GDP figures were as high as they were was because manufacturers and distributors believed the Pollyannaish claims in Washington and on Wall Street, and they built up their inventories of new products, expecting a surge in consumer demand by Q2 or Q3.

But in Q2, "real final sales of domestic product" continued to be weak, with the result that growth of reported inventory adjustments continued to fall. This is all consistent with the overall trend that trade and transportation are falling.

Additional links

Israel's Air Force bombed several sites in Gaza on Saturday morning, targeting Hamas-linked sites. Jerusalem Post

Moody's Investors Services warns that the U.S. needs a credible plan to address its soaring debt, in order to maintain its AAA credit rating. Reuters

Harvard Professor Niall Ferguson agrees. Alarm bells should be ringing very loudly in Washington, as the US contemplaces a 2010 deficit of more than $1.47 trillion. There comes a moment when a complex system (like the American economy) "goes critical". A very small trigger can set off a phase transition from a benign equilibrium to a crisis. Australian

A subtle but significant shift is occurring within the Federal Reserve, as members become increasingly concerned that the US economy is heading for a deflationary spiral. This is what I've been predicting for several years, so I guess it's nice that even the Fed is starting to see it. NY Times

Credit card issuers have dreamed up new ways to trip up consumers and charge excessive fees and interest rates to pay for their million dollar bonuses. How to protect yourself. WSJ (Access)

Global AIDS activists are pining for former president George W. Bush, who was much more supportive than Obama in the fight against AIDS. The mood of activists is a "combination of rage and panic." The rage is particularly directed at President Obama, for reneging on commtments to support global AIDS spending. Washington Post

Once again, there are fears of a new civil war in Lebanon. Hizbollah leader Hassan Nasrallah is threatening violence because a new U.N. report is expected to implicate Hizbollah members in the killing of former prime minister Rafik Hariri in 2005. However, as I've written many times, a civil war in Lebanon at this time is impossible, since Lebanon is in a generational Awakening era. The National

In Pakistan, hundreds have been killed and hundreds of thousands have been driven from their homes by torrential rains and subsequent floods. Daily Times

In Kashmir, with hundreds of protesters filling the streets, four people were killed when police opened fire on protesters. Indian Express

China's dangerous arrogance is threatening freedom of the seas in the Pacific, especially the South China Sea. The Diplomat

China says that it held large scale military exercises in the South China sea, that coincided with the joint exercises in the Sea of Japan by the U.S. and S. Korea. VOA

A spike in Army suicides is being blamed on a "permissive" environment with inconsistent discipline. CNN

A furious Defense Secretary Robert M Gates announced that the FBI will assisting in finding the source of the Wikileaks documents. NY Times

The major ethnic clashes in Kygyzstan in March have not completely ended, as Uzbeks are still the targets of violence by ethnic Kyrgyz. As a result, tens of thousands of Uzbeks are emigrating to Russia. Global Post

300 camps for Roma people, also known as "Gypsies" or "travelling people," are going to be dismantled, and the residents deported back to their country of origin, usually Romania or Bulgaria. The policy was announced by French president Nicolas Sarkozy, and activists are calling it "racist." France24

Jackie Cobell, a 56 year old woman, took 28 hours and 4 minutes to swim the English channel, allowing her to set a world's record -- for the longest known time to complete the achievement. Telegraph

(Comments: For reader comments, questions and discussion, see the 31-Jul-10 News -- GDP figures show economy is slowing thread of the Generational Dynamics forum. Comments may be posted anonymously.) (31-Jul-2010) Permanent Link
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30-Jul-10 News -- Cameron's accusations roil Pakistan

Wikileaks editor Julian Assange loves 'crushing bastards'

Accusation that Pakistan supports terrorism brings harsh response

From the point of view of Generational Dynamics, the interesting thing to watch is how events affect history, and how the effects are different during different generational eras.

British Prime Minister David Cameron's remarks have infuriated the Pakistanis. (See "29-Jul-10 News -- British PM sides with India against Pakistan.")

Cameron accused Pakistan of supporting terrorism in India and Afghanistan. And he humiliated Pakistan by making those accusations in Bangalore, in the home of Pakistan's arch-enemy, India.

On Thursday, now in New Delhi, Cameron defended his remarks as a duty to speak "clearly and plainly," according to UK Press.

He repeated his charges: "It is not acceptable, as I have said, for there to be within Pakistan the existence of terror groups that cause terrorism both within Pakistan and also outside Pakistan, in Afghanistan, in India and elsewhere in our world. What we will continue to do is work with the Pakistan government to do everything that we can to encourage them to crack down and to take on these groups that have caused so much pain and so much suffering."

However, he was a little nicer on Thursday, since he didn't say that the Pakistan government were directly supporting the terror groups.

The Pakistan Ministry of Foreign Affairs issued a statement:

"Pakistan is as much a victim of terrorism as are Afghanistan, India or other countries.

Pakistan has done much more than any other country in combating terrorism. Our people and security forces have rendered innumerable sacrifices. We hope that our friends will be able to persuade India to view this issue objectively and the value of “cooperation” in counter terrorism."

In addition, the Foreign Ministry will demand from the British envoy to Pakistan a full explanation of Cameron's remarks, according to Dawn.

Spiegel quotes Pakistan's ambassador to London, Wajid Shamsul Hasan, as saying that the comments were an "immature reaction from an immature politician."

So how far will this war of words go? Will the Pakistani people, many of whom are already blaming the U.S. for motivating the Taliban's terrorist acts in Pakistan, turn further against the U.K. and the U.S.?

Recall that it was just a couple of weeks ago that India-Pakistan peace talks collapsed. (See "17-Jul-10 News -- India-Pakistan peace talks collapse in acrimony.")

The peace talks never had a chance of succeeding anyway, but Cameron's remarks may have made it certain that they won't even start again. This is something to watch for in the next few days and weeks.

Attitudes in Pakistan

Pakistan poll results <font face=Arial size=-2>(Source: Pew Research)</font>
Pakistan poll results (Source: Pew Research)

On Thursday, the Pew Global Attitudes Project issued a report on public opinion in Pakistan. I've extracted two graphics of interest.

The top graphic shows that Pakistanis' attitude toward the United States and President Obama. As you can see, opinions are very low, though a major say that they'd like them to improve.

However, I was struck by the graphic on the bottom. It shows attitudes that are very, very far from Western views. I believe that it would be very hard to find someone in the West who would say that, as a rule, adulterers should be stoned (though some might wish it for their particular ex-wives or ex-husbands).

But 82% of Pakistanis, according to this poll, agree with stoning adulterers. That's amazing, since stoning anyone is a particularly bloody pursuit.

These questions show what how different the Pakistanis' world view is from the West's word view.

And if Pakistanis have such widely different views about stoning adulterers or cutting off hands, then it stands to reason that their attitudes toward the Afghan war and terrorism are also very different.

That's why Cameron's remarks, accusing Pakistanis of exporting terrorism to India and Afghanistan, will almost certainly not have the desired effect of getting the Pakistanis to control terrorism better (as if such a thing were possible). Instead, his remarks could change Pakistani public opinion in a way that cannot easily be understood in the West. This is something to watch for.

Wikileaks editor Julian Assange loves 'crushing bastards'

You have to wonder what Julian Assange hoped to accomplish by faciliting this massive leak of tens of thousands secret documents, and you have to wonder whom, exactly, he loves crushing when he says that "loved crushing bastards."

Actually you don't have to wonder for long, because from a generational point of view it's pretty obvious. Born in 1971, Assange is a Generation-Xer, and like many Generation-Xers, there's a good chance that he hates all Boomers. Those are most likely the "bastards" he's referring to.

He says that he wants to promote a debate about the Afghanistan war. It's already the most publicly debated subject these days, so how much more debate was he expecting to promote?

Actually, he was dreaming of becoming another Daniel Ellsberg, who became a hero to the left in 1971 by releasing the Vietnam war "Pentagon Papers" to the NY Times.

But 1971 was the height of the generational Awakening era, and the height of the anti-war protests by college students.

Today, we're in a generational Crisis era, and there are few anti-war protests, almost none by college students.

So instead of being viewed as a leftist hero, there's a good chance that even the left will hold Assange responsible for putting the lives of Nato soldiers, American intelligence officers, and Afghan and Pakistani informants in danger.

In the end, this may be just one more example of the nihilism, destructiveness and self-destructiveness of Generation-X.

At any rate, you can be sure that intelligence officers in al-Qaeda and the Taliban are studying the Wikileaks documents, and will take appropriate action.

(Comments: For reader comments, questions and discussion, see the 30-Jul-10 News -- Cameron's accusations roil Pakistan thread of the Generational Dynamics forum. Comments may be posted anonymously.) (30-Jul-2010) Permanent Link
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29-Jul-10 News -- British PM sides with India against Pakistan

Mideast Peace talks face Sept. 26 deadline when settlement freeze ends

Britain's PM David Cameron sides with India against Pakistan

British Prime Minister David Cameron has been a busy little bee this week, as he goes from country to country.

Yesterday I reported that Cameron, in Ankara, Turkey, sided with Turkey against Israel. (See "28-Jul-10 News -- Britain's PM sides with Turkey against Israel.")

On Wednesday, Cameron was in Bangalore, India, siding with India against Pakistan.

The Guardian quoted Cameron as follows, referring to Pakistan:

"We cannot tolerate in any sense the idea that this country is allowed to look both ways and is able, in any way, to promote the export of terror, whether to India or whether to Afghanistan or anywhere else in the world.

That is why this relationship is important. It should be a relationship based on a very clear message: that it is not right to have any relationship with groups that are promoting terror. Democratic states that want to be part of the developed world cannot do that. The message to Pakistan from the US and the UK is very clear on that point."

Cameron was reacting to several recent charges that Pakistan's government, especially Pakistan's Inter-Services Intelligence (ISI) agency, has been helping terrorists in Afghanistan and India. These charges infuriate the Pakistanis, and they vehemently deny them. However, Cameron appears to be decisively siding with India against Pakistan.

There are two major categories of these charges that Pakistan supports terrorists:

In Generational Dynamics, we're always looking for changes in attitude and behavior of large masses of people, generations of people, and that appears to be going on today. For weeks it appears that there's been increasing recognition of the futility of the Afghan war. And with the Wikileaks release, there seems to be an increasing belief, fair or not, that Pakistan is aiding the Taliban.

This is a potentially dangerous situation, as Pakistanis become increasingly hostile to Nato, India and the West, while they get closer to China.

It's far from clear to me what David Cameron is doing. Perhaps there is no more complicated explanation than that Cameron is a young Generation-Xer, doing dumb things like many Generation-Xers.

As I wrote yesterday, siding against Israel runs counter to long-term trends, so Generational Dynamics predicts that this change in political direction is only temporary.

But his criticisms of Pakistan are consistent with long-term trends, and so his statements are going to be part of the scenario that pushes us toward the Clash of Civilizations world war.

Additional links

Mideast peace talks are facing a deadline of sorts on September 26, when a 10-month freeze of Israeli settlement construction is set to expire. Foreign Minister Avigdor Lieberman, who is not from Prime Minister Binyamin Netanyahu's party, but is part of his coalition, has reassured settlers that life will return to "normal" when the freeze ends on that date. A return to settlement construction would lead to enormous anger from the Palestinians, and from Western leaders. Washington Post

Israeli Prime Minister Binyamin Netanyahu says that any attempt to continue the freeze on settlement construction past September 26 would bring down the government. Haaretz

A Sunni Muslim leader in Lebanon is expressing concern about the exodus of Christians from Lebanon and the region, in reaction to the growing population and hostility of their Muslim neighbors. Media Line

Egyptian forces took control of 10 smuggling tunnels under the Egypt-Gaza border on Wednesday and thwarted a cement-smuggling operation. Eurasia Review

A malware software program called Stuxnet has been demonstrated to be able to steal industrial data from Siemens control systems on the US power grid. Another demonstration showed how a hacker could break into a massive power turbine and physically destroy it. ComputerWorld

Russia is becoming increasingly concerned about Iran's development of nuclear weapons, and that's leading to a war of words between the two countries. Geopolitical Monitor

Increasing violence by PKK Kurd terrorists in Turkey is leading to conspiracy theories within the government, including explosive charges that members of Turkey's "deep state" are fueling conflict with the PKK in order to undermine trust in the government. WSJ (Access).

The first phase of the U.S. / South Korean naval exercises have ended without incident beyond verbal threats from North Korea. The joint exercise focused particularly on antisubmarine maneuvers. On the last day, they conducted simulation drills in which they practiced detecting infiltrations of enemy submarines, and dropping antisubmarine bombs and torpedoes. Ten more exercises are planned. Korea Herald

Are you addicted to cosmetics? There can be a dark side to being a beauty and cosmetic junkie. LA Times

(Comments: For reader comments, questions and discussion, see the 29-Jul-10 News -- British PM sides with India against Pakistan thread of the Generational Dynamics forum. Comments may be posted anonymously.) (29-Jul-2010) Permanent Link
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28-Jul-10 News -- Britain's PM sides with Turkey against Israel

Turkey abandons Armenia for Azerbaijan

Britain's PM David Cameron sides with Turkey against Israel

Turkey's influence in the Mideast continued to grow on Tuesday, as British Prime Minister David Cameron called Gaza a "prison camp" during a state visit to Ankara, the capital of Turkey.

CNN quotes Cameron as saying, "Let me also be clear that the situation in Gaza has to change. Humanitarian goods and people must flow in both directions. Gaza cannot and must not be allowed to remain a prison camp."

The perception is that the new Prime Minister is taking a sharp turn against Israel and the balanced policy pursued by his predecessor, Tony Blair.

This comes at a time when the perception is growing, whether fair or not, that President Barack Obama is also turning against Israel, as can be seen from this sardonic opinion piece in the Jersusalem Post. Both Cameron and Obama are taking these positions following the flotilla incident, resulting in nine deaths. Both are calling for an end to the Gaza blockade.

From the point of view of Generational Dynamics, these perceptions cannot survive for long. America is closely wedded to Israel as its protector. (For more information about why America is Israel's protector, see my 2006 report, "President George Bush talks about a 'Third Awakening,' but he has his history wrong.")

Thus, this change in political direction can be seen as temporary, since it goes counter to a strong long-term trend. In fact, as soon as a major crisis strikes Israel, America (and Britain) will come to Israel's aid.

Turkey abandons Armenia for Azerbaijan

Azerbaijan.  The enclave on the left is Nakhchivan.  Not shown on the map, Turkey has a 10 km border with Nakhchivan. <font size=-2>(Source: CIA World Fact Book)</font>
Azerbaijan. The enclave on the left is Nakhchivan. Not shown on the map, Turkey has a 10 km border with Nakhchivan. (Source: CIA World Fact Book)

Around the same time that Turkey's relations with Israel were deteriorating, Turkey's relations with Armenia were also deteriorating.

Turkey's dispute with Armenia goes back almost a century to 1915, when hundreds of thousands of Armenians living in Turkey were killed. Armenia has fought to have this declared an act of genocide by the Turks, a description that Turkey bitterly opposes. (See my 2008 report, "Consequences of Russia/Georgia conflict spread to southern Caucasus.")

Turkey and Armenia do not have diplomatic relations, but appeared to be on the verge of restoring them just a few months ago. However, Armenians insisted as a precondition that the Turks admit to a genocide, and that was never going to happen. In April, negotiations to restore diplomatic relations and reopen their common border collapsed.

Azerbaijan is a country split into two non-connected parts, as shown in the above map. The enclave on the left is Nakhchivan, which has been the subject of past conflicts involving Turkey, Armenia and Azerbaijan. Turkey is now moving closer to Azerbaijan's position, by signing energy and transportation deals with Azerbaijan, according to EurasiaNet.

The Caucasus nations are sharply split along the Muslim / Orthodox fault line. Turkey and Azerbaijan are Muslim nations, while Armenia, through the Armenian Apostolic Church, is an Orthodox Christian nation -- like Georgia and Russia.

As we move in the direction of the Clash of Civilizations world war, we can see realignments taking place that follow the historical trends established decades or centuries ago.

In the war, Turkey and Azerbaijan will be aligned with the Muslim countries, along with Pakistan and China, and Armenia and Russia will be aligned with the west.

Keeping cool in a duckweed crisis

Keeping cool amid a duckweed crisis <font face=Arial size=-2>(Source: Global Times)</font>
Keeping cool amid a duckweed crisis (Source: Global Times)

This photo, taken on Sunday shows a child swimming in a lake whose surface is choked by duckweed, an algae-like plant, in Jiaxing, Zhejiang Province, according to China's Global Times.

Additional links

The U.N. Security council received a report on Tuesday indicating that the fighting and violence in Darfur is increasing substantially. From the point of view of Generational Dynamics, this is a generational crisis war that has yet to reach a climax. If the situation continues to deteriorate, the explosive, bloody climax may come in the next few months. CNN

Many college students are facing hunger and homelessness, as they are forced to choose between paying rent and paying tuition. NPR

Oscar winner Oliver Stone, who is among the looniest of the loony left, is saying that Hitler and Stalin weren't so bad, even though each of them was responsible for the slaughter of tens of millions of people. Stone is sympathetic to modern dictators like Fidel Castro and Hugo Chavez, and presumably thinks that they're all wonderful compared to George Bush. What a pathetic and repulsive human being. NBC NY

Carla Bruni, the wife of French President Nicolas Sarkozy, will make her acting debut with Hollywood star Owen Wilson in a Woody Allen film being shot in Paris. The movie is a romantic comedy named "Midnight in Paris." AFP

On Thursday, Barack Obama will appear on The View, America's version of the ITV show Loose Women. Daily Mail

(Comments: For reader comments, questions and discussion, see the 28-Jul-10 News -- Britain's PM sides with Turkey against Israel thread of the Generational Dynamics forum. Comments may be posted anonymously.) (28-Jul-2010) Permanent Link
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27-Jul-10 News -- Kashmir protests erupt again

EU will provide 10 million euros to Yemen

Generational Dynamics on

I am now a contributor to Andy Breitbart's where I am continuing to write non-partisan analyses of world events, based on Generational Dynamics theory.

My first two published articles are as follows:

This will hopefully provide Generational Dynamics with a much wider audience.

Kashmir protests erupt again after death of militant in custody

Indian subcontinent, showing the disputed regions of Kashmir and Jammu.
Indian subcontinent, showing the disputed regions of Kashmir and Jammu.

After weeks of strikes and protests, life in Kashmir was being described as "normal" over the weekend. But the relief was short-lived after the death, allegedly in the hands of the police, of Tariq Ahmad Dar. Dar had been arrested on charges of being involved in militant activities, according to DNA India. Separatist militants are demanding that India-controlled Kashmir be given independence.

According to the pro-militant Kashmir Media Service, Dar was an innocent youth who was arrested and tortured to death while in custody. His body was returned to his family on Saturday evening.

The police have promised a full investigation, but most shops, businesses and schools were closed and streets were deserted on Monday, as separatist militants called for five days of strikes and demonstrations, according to the Pakistan Daily Times.

Kashmir and Jammu were a major site of the extremely bloody war between Hindus and Muslims after Partition in 1947 (when the India subcontinent was partitioned into Pakistan and India). After the war, Kashmir and Jammu were split into Pakistani-controlled and India-controlled regions, separated by a "line of control" (LoC). Since then, Pakistan and India have fought two non-crisis wars over the region, and it's been a continuing source of unrest, terrorist attacks, and violence.

Prior to 9/11/2001, most of the terrorist violence in Pakistan and India was directly related in one way or another to Kashmir, which has become a highly emotional symbol of the differences between Sunni Muslims and Hindus in Pakistan and India. However, once the war in Afghanistan began, the war presented an opportunity for al-Qaeda to directly attack India's ally, the United States. If the United States and Nato withdraw from Afghanistan, then al-Qaeda, the Taliban, and other Islamist terrorists would declare victory, and violence would quickly surge in Kashmir, possibly triggering another war.

Generational Dynamics predicts that India and Pakistan are headed for a major new war, re-fighting the war between Hindus and Muslims of 1947-48. Both countries have nuclear weapons. Pakistan will be supported by China, and India will be supported by the US and Russia, so this war will quickly spiral into a nuclear war and a world war.

Where the money goes

Here's a great graphic from Jim Quinn's Burning Platform blog:

Budget income and outgo <font size=-2>(Source:</font>
Budget income and outgo (Source:

Financial pundits look at these figures, and they talk about ways to save money -- cut a weapons system from defense, cut fraud and abuse from medicare, etc.

Unfortunately, from the point of view of Generational Dynamics, that's not the way it's going to work.

First off, no substantial cuts will be made anywhere until a major crisis occurs.

Once the major crisis occurs, then nothing is sacred. Medicare and Social Security may be canceled entirely, simply because there will be no money to pay for them. There's no way to predict how it will unfold, but we can be sure that everyone will be miserable.

Additional links

With Yemen's government facing the possibility of total collapse, the EU is providing 10 million euros in emergency aid to respond to urgent humanitarian needs. Eurasia Review

Within 24 hours after agreeing to a ceasefire, Army-backed tribes and Houthi rebels resumed fighting in northern Yemen. UAE's The National

Tuesday will be the third day of joint South Korea - US naval drills in the Sea of Japan. The two allies will fire naval guns and artillery at an abandoned submarine disguised as a North Korean submarine in the East Sea. Arirang

A 'must read' article describing the "trust deficits" among the various players in Asia -- Pakistan, India, Afghanistan and the US. Pakistan Daily Times

The recent ethnic violence between Uzbeks and Kyrgyz in Kyrgyzstan may have been caused by organized crime in the country. Eurasia Net

Corruption cases in Thailand may accomplish what the Red-Shirt protestors were unable to do: Force Prime Minister Abhisit Vejjajiva to resign. Washington Times

Turkey's influence in the Mideast and Asia continues to grow at the expense of Iran. This is consistent with the Generational Dynamics view that, when forced to choose, Iran will side with the West. VOA

(Comments: For reader comments, questions and discussion, see the 27-Jul-10 News -- Kashmir protests erupt again thread of the Generational Dynamics forum. Comments may be posted anonymously.) (27-Jul-2010) Permanent Link
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26-Jul-10 News -- Markets shrug off flawed European stress tests

The 'rule of 20' - another away to cheat on stock valuations

Markets shrug off flawed European stress tests

European politicians and financial execs were in a tizzy all last week because they were afraid that the results of the stress tests of European banks, which were to be released at 5 pm on Friday in Europe (noon, NY time), would be bad.

They needn't have worried. Of the 91 banks being tested, only 7 failed -- one German bank, one Greek bank, and 5 regional Spanish banks (cajas). And all seven of the 'failed' banks are going to raise enough capital to make sure that the markets are calm when they open on Monday, according to the Independent.

The consensus of financial pundit opinion over the weekend seems to be that the tests were a "joke," or "flawed," or "cyncially calibrated" or "not rigorous," but that the markets won't care.

"If you tried to test the safety of cars or children’s toys using the same method the European Union applied in its stress tests on banks, you would end up in jail," said Walter Münchau of Financial Times (Access). "How so? Simply because the testing mechanism was calibrated to fix the result. The purpose of the exercise was to ensure that the only banks that failed it were those that would have to be restructured anyway."

Let's recall how the financial crisis came about. First there was a global real estate bubble that artificially raised the prices of homes by a factor of 2 or 3. Then the bankers figured out a way to create artificial securities (collateralized debt obligations, or CDOs, backed by mortgages) that leveraged even the bloated real estate prices by a factor of 5 or 10. Thus, tens of trillions of dollars of these synthetic securities, now known as "toxic assets," were created and sold at prices 10 to 30 times their real market value.

These synthetic securities are in financial portfolios around the world -- individual investors, banks, country treasuries, etc. These securities were used as collateral for further bad loans, or to pay off labor unions with extravagant wage and benefit guarantees. Everybody had an angle, and everyone was out to screw other people.

One of the problems with the European bank stress tests is that not all the toxic assets were required to be marked to the market value. This is the same problem with American banks. Regulators have told banks to continue to defraud their investors by misrepresenting the values of the toxic assets on their balance sheets. Anyone who buys stock in banks, based on the asset values shown in the banks' balance sheets, is a victim of fraud, perpetrated by the banks with the full cooperation of the regulators.

The biggest and most serious problem with the European stress tests, according to Münchau, is that they ignore the problem of sovereign default. For example, it's all but certain that Greek debt is going to default, and any bank that has invested in Greek bonds is going to lose a lot of money. But the stress tests almost completely ignore that problem.

As Münchau points out, "The stress tests follow a pattern that has been evident since the outbreak of the acute phase of the financial crisis in September 2008. The EU’s approach to the financial sector has been to apply patchwork fixes – a blanket bail-out, some not very serious recapitalisation plans, plus loads of liquidity – rather than solve the problem."

In other words, in Europe as in America, the same kinds of fraud that have been going on for years are still going on.

You might wonder whether these politicians and financial people have any plans. The answer is "Yes, they have a plan." The plan is to pray that the world economy will begin to grow again as it did in the mid 2000s decade, and "grow the economy out of debt."

This is like a person racking up more and more credit card debt, hoping that his salary increases will eventually allow him to pay them off. There are two flaws in that reasoning. One is that he may not get the salary increases. And the other is that if he does get the salary increases, then his wife will just get him to rack up even greater credit card debt. Nothing will change until the buy is bankrupt.

The same flaws are apparent in the world economy plan. First the economy may not grow. And second, even if it does grow, then the labor unions and the liberals and progressives would make sure that any additional funds are used for more union wages and social programs.

The above is actually sort of a mathematical proof that a much worse crisis is going to come soon. Since no steps except "patchword fixes" will ever be taken to resolve the problems, the only thing that will end the crisis is the international form of bankruptcy.

From the point of view of Generational Dynamics, nothing has changed. Generational Dynamics predicts that we're headed for the biggest financial crisis in history with mathematical certainty. These stress tests are just game-playing along the way.

The Rule of 20

I heard a financial analyst mention the "rule of 20" on Bloomberg TV the other day. In checking it out, I discovered an interesting historical artifact of one of the many ways that researchers justified the dot-com and subsequent bubbles.

The Great Depression survivors were very cautious investors, and never allowed any of the debauched practices that caused the Depression. However, those survivors pretty much disappeared (retired or died) by the mid-1990s, and the Boomers and Gen-Xers who took over had no particular reluctance to refrain from any kind of financial debauchery whatsoever.

The paper, "Tactical Asset Allocation: Follow the Rule of 20" (PDF), by Glenn Tanner, appearing in the Journal of Financial and Strategic Decisions in 1999, is a great illustration of how this particular kind of debauchery took place.

Here are the first few paragraphs from that paper:

"The false alarms set off by high market PE ratios in 1995-1996 have motivated many market participants to look for new asset allocation signals. The Rule of 20 appears to be a strong candidate to replace the PE ratio for market watchers. The Rule of 20 is simply a modification of the PE (market PE + annual inflation) that recognizes that PE’s should be high in periods of low inflation. This paper examines the forecasting performance of The Rule of 20 relative to the PE ratio. Using a 60-year data set, the R20 measure showed better forecasting performance than the PE for 3-month, 6-month, and 12-month market changes. An experiment performed on a sub-sample of the data suggests that the R20 measure could have been used as a profitable asset allocation tool. ...

One of the most often-cited indications of stock market overvaluation is a high price earnings ratio. The widely reported version of the PE ratio is simple to calculate – it is the ratio of current stock price to the sum of the four most recent quarterly accounting earnings per share, or the number of dollars that investors are willing to pay per dollar of earnings. Thus, according to conventional wisdom, the higher the PE ratio of the market (the more investors are willing to pay for earnings), the more overvalued the market is likely to be; lower PE ratios indicate a good time to buy. This idea has been empirically tested by Bleiberg (1989) and Good (1991); both studies found that market PE ratios were inversely correlated with subsequent market returns – low PE ratios signaled high market returns and high PE ratios were generally followed by low market returns.

Recent market performance has motivated traders to look for improvements on the PE ratio. Those who believe that high PE’s are a danger signal likely missed out on the 30%-plus market returns in 1995, which came in the midst of PE ratios in the 21-to-22 range. Many traders explained this apparent contradiction by claiming that the high PE ratios were justified by low inflation.1 This explanation yielded a derivative of the PE ratio as a market predictor – the Rule of 20. The measure is calculated by adding the annualized inflation rate to the market PE ratio.

The name comes from the supposedly key point of the measure – if the measure is under 20, expect the market to do well; if over 20, be wary of a declining market."

These words are so full of irony that they're laughable.

Tanner apparently was not aware, or did not believe, that the market was in the middle of the dot-com bubble in 1999. What he was saying was that if you used the traditional measure of stock valuation (the price/earnings ratio that the old geezers who had survived the Great Depression used), then you missed out on the dot-com bubble.

As I've said many times, the historical P/E average (stock price divided by one year trailing earnings) is around 14. Since 1995, the P/E ratio has been far above the historical average, and by the Law of Mean Reversion will have to fall down to a value well below average (around 5) for the same period of time, around 15 years. (See "How to compute the 'real value' of the stock market.")

The "Rule of 20" is a way of ignoring the realities of stock valuation, and is interesting for its historical value. In a period of near-zero inflation, like today, it justifies a P/E ratio of 20, which is absurd.

In recent years, the financial analysts have dreamed up even more imaginative ways to deal with high P/E ratios. The one we've discussed most often is to use "operating earnings" rather than real earnings. Operating earnings are a fiction computed by ignoring one-time expenses in computing earnings. This effectively pushes earnings up artificially high, and lowers P/E ratios.

For the survivors of the Great Depression, valid computations of price/earnings ratios were the best guide to investing in stocks. The Boomers and Gen-Xers did everything in their power to distort the P/E ratios to justify the stock market bubble. With the coming financial crisis, we're all going to pay the price.

Additional links

Safeway supermarkets cut its 2010 earnings forecasts substantially, saying that price deflation caught them by surprise. Safeway had "expected the recovery to start right around now with a little more momentum and a little more pricing power," but found instead that "Deflation continues in price per item and is not expected to significantly improve until the fourth quarter." Reuters

Former Fed Governor Lawrence Lindsey predicted that the Fed will have to take additional easing steps because of deflation. "It will be obvious for the Federal Reserve by the end of this year that we are entering in a deflationary trap and I would expect some response by the Fed by that time." Bloomberg

Last year's H1N1 swine flu pandemic turned out to be nowhere near as bad as had been feared, but the danger hasn't ended. A new mutation is spreading rapidly among swine in Iowa and Illinois. The new mutation has not yet been transmitted from swine to humans, but that could change, resulting in a much worse pandemic than last year's. Recombinomics

With Israel-Turkey relations disintegrating since the flotilla incident, relations between Syria and Turkey are becoming much friendlier, and tens of thousands of Syrian shoppers are flocking to the city of Gaziantep in southeastern Turkey for bargain hunting. NY Times

China is building a fleet of aircraft carriers and, at the same time, developing land-based anti-ship ballistic missiles that can destroy America's aircraft carriers. Asia Times

China is making huge investments in Pakistan's energy infrastructure, but the U.S. will oppose a Chinese nuclear reactor sale to Pakistan on the grounds of preventing nuclear proliferation. Washington Times

The use of internet among rebels in Kashmir to promote Kashmiri independence is small but growing. The Hindu

The situation in Somalia continues to deteriorate as tens of thousands of people have tried to flee the conflict, but are being turned back by the refugee camps in surrounding regions. Eurasia Review

During WW II, Switzerland was preparing for a major Nazi invasion that never came. In preparation, the Swiss build large underground bunkers, designed to hide their soldiers, along with weapons, ammunition and other supplies. These fortifications were maintained until the 1990s. Time

(Comments: For reader comments, questions and discussion, see the 26-Jul-10 News -- Markets shrug off flawed European stress tests thread of the Generational Dynamics forum. Comments may be posted anonymously.) (26-Jul-2010) Permanent Link
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25-Jul-10 News -- Fighting continues in Darfur

Sudan's president Bashir thumbs his node at Darfur genocide charges

The humanitarian crisis in Darfur continues

The war in Darfur has been an interesting study for Generational Dynamics. The war began in the 1970s, but the world only discovered it in 2004. In 2005, the UN announced that it wasn't a genocide, because they didn't want to deal their obligations once that determination had been made. However, the United States DID officially call it a genocide. After that, movie stars were constantly flying over there. Activists were demanding that the U.S. military get involved and stop the war -- as if that were possible, and as if the two wars we're fighting weren't enough. (See "Jesse Jackson calls for sending American troops to Darfur" and "Senator Joe Biden wants to move troops from Iraq to Darfur civil war.")

In February of this year, Sudan's president Omar Al Bashir announced that the Darfur war was over, even though there was still fighting going on. (See "27-Feb-10 News - War in Darfur may be starting again.")

Recent reports indicate that the fighting between the rebel group Justice and Equality Movement (JEM) and the Sudan army has been increasing, according to AFP, although other rebel groups are are indicating a willingness to agree to at least a temporary ceasefire, according to Bernama.

A detailed analysis of the humanitarian situation by Eric Reeves appeared in the Sudan Tribune (Part 1 and Part 2).

There are 2.7 million refugees living in tents, entirely dependent on international food aid. As the fighting continues, the number of refugees is still growing, and camps are overcrowded, according to the articles.

From the point of view of Generational Dynamics, this is a generational crisis war that has not yet reached a climax. Those 2.7 million people are extremely vulnerable to army attacks and to starvation if the international aid is suddenly disrupted. This war is far from over.

Sudan's president Bashir thumbs his nose at International Criminal Court

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

The UN's handling of the situation in Darfur since 2004 has been mostly a stage show, and every stage show has to name a villain. In this case, the UN has named Sudan's president Omar al-Bashir as the individual to blame for the genocide in Darfur. In particular, the International Criminal Court (ICC) issued two arrest warrants in March of last year for Bashir, on charges of war crimes and crimes against humanity.

On Friday, Bashir returned home to Khartoum from a summit meeting in Chad, declaring a victory, according to the AFP. The victory is that Chad is a member of the ICC, but still refused to arrest Bashir and turn him in to the ICC during his Chad visit.

An adviser to Bashir is quoted as saying, "This summit... shows African solidarity and it also exposes the ICC and its agenda and it also exposes the agenda of some European countries and the United States in particular. We praise our relations with Chad very much. We have made very clear in previous occasions that we cannot see an end to the problem in Darfur without fixing the relationship with Chad. It is a victory in the profound sense of the word (and) we are happy,"

The "agenda" that the adviser referred to is the claim that the ICC only targets African nations. The ICC is currently handling 5 cases, all African: Uganda, Central African Republic (CAR), Democratic Republic of Congo (DRC) , Darfur and Kenya.

The West has been outraged at Chad's refusal to arrest Bashir. The BBC quotes Human Rights Watch as saying, "Chad risks the shameful distinction of being the first ICC member state to harbour a suspected war criminal from the court." Amnesty International also called on Chad not to shield Mr Bashir and said the visit was an opportunity for justice.

But Chad's ambassador responded, "We are with the rule of law and everybody has to pay for his mistakes and for any crime he commits but when it will be selectively and targeting only African leaders it should not be accepted."

The African Union (AU) is holding a summit in Uganda on Sunday, and Reuters reports that the AU will advise its member states not to cooperate with the ICC. "(The AU) reiterates its decision that AU member states shall not cooperate with the ICC in the arrest and surrender of President Bashir," according to the draft resolution.

(Comments: For reader comments, questions and discussion, see the 25-Jul-10 News -- Fighting continues in Darfur thread of the Generational Dynamics forum. Comments may be posted anonymously.) (25-Jul-2010) Permanent Link
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24-Jul-10 News -- US confronts China on South China Sea claims

North Korea promises a 'sacred war'

Hillary Clinton confronts China on South China Sea claims

South China Sea, with blue line added to show region claimed by China as part of its sovereign territory
South China Sea, with blue line added to show region claimed by China as part of its sovereign territory

As I've reported in the past, China is very aggressively claiming that the entire South China Sea region, including the Paracel and Spratly Islands and some 200 other islands, is China's sovereign terrority, and that they have the right to prohibit foreign ships from entering that region.

China's claims are challenged by several other countries in the region, as well as by the United states. (See "28-Jun-10 News -- Military tensions increase in South China Sea.")

On Friday, Secretary of State Hillary Clinton gave a press conference in Hanoi at a meeting of the Association of South East Nations (ASEAN). For the first time, a high level US official confronted China on their South China Sea claims. Here's what she said, according to the official transcript:

"We also discussed a number of other important topics: climate change, trading and economic integration, democracy and human rights. And I took the opportunity along with a number of my ASEAN and ASEAN Regional Forum colleagues to set forth my government’s position on an issue that implicates the security and prosperity of the region, the South China Sea.

I’d like to briefly outline our perspective on this issue. The United States, like every nation, has a national interest in freedom of navigation, open access to Asia’s maritime commons, and respect for international law in the South China Sea. We share these interests not only with ASEAN members or ASEAN Regional Forum participants, but with other maritime nations and the broader international community.

The United States supports a collaborative diplomatic process by all claimants for resolving the various territorial disputes without coercion. We oppose the use or threat of force by any claimant. While the United States does not take sides on the competing territorial disputes over land features in the South China Sea, we believe claimants should pursue their territorial claims and the company and rights to maritime space in accordance with the UN convention on the law of the sea. ...

I think that 12 participants raised the South China Sea and general maritime navigation and claim issues in our discussion. Because if you look at a map of this region, there are many countries that are increasing their trade, their commercial maritime traffic. There is a lot of activity. This is some of the busiest sea lanes in the world, and there’s a concern that we all abide by the international rules in order to determine how to proceed and certainly, the 12 participants including the United States, that raise this issue would want to see the application of the principles agreed to previously by ASEAN, the existing international laws and regulations and the custom of how all these countries in this region can share this common space of the oceans."

Clinton's words were not particularly bellicose, but the Chinese, who sometimes become almost hysterical when confronted with criticism, were definitely unhappy with this statement, according to Reuters. The article quotes an unnamed diplomat describing the private reaction of Clinton's counterpart, Chinese Foreign Minister Yang Jiechi. Yang made "a very strong and emotional statement ... He was distinctly not happy."

This reminds me of a statement by Sha Zukang, China's U.N. ambassador, in an interview with a BBC reporter in 2006. I've never seen this interview reported anywhere else, but I transcribed this myself because I was so startled at hearing Sha screaming at the top of his lungs at the BBC interviewer. (See "Furious Chinese ambassador harshly threatens U.S. over Taiwan.") He screamed the following:

"The moment that Taiwan declares independence, supported by whomever, China will have no choice but to [use] whatever means available to my government. Nobody should have any illusions on that. ...

It's not a matter of how big Taiwan is, but for China, one INCH of the territory is more valuable than the LIVES of our people."

[With regard to the U.S.'s constant criticism of China's rapid militarization:] It's better for the U.S. to shut up, keep quiet. That's much, much better. China's population is 6 times or 5 times the United States. Why blame China? No. forget it. It's high time to shut up. It's a nation's sovereign right to do what is good for them. But don't tell us what's good for China. Thank you very much."

This is the same reaction that China always exhibits. They are reacting the same way with regard to the South China Sea as they are with Taiwan, and a military confrontation is possible at any time.

From the point of view of Generational Dynamics, the U.S. and China are headed for a war with absolute certainty. This war might begin in Taiwan or in the South China Sea or in central Asia.

North Korea promises a 'sacred war' and 'physical response' to war games

Yellow Sea and Sea of Japan -- called East Sea and West Sea, respectively, by S. Korea
Yellow Sea and Sea of Japan -- called East Sea and West Sea, respectively, by S. Korea

North Korea also attended the same ASEAN conference, and responded to the plans for joint U.S.-South Korea naval exercises planned in the Sea of Japan for July 23-25, with additional exercises planned for the Yellow Sea in September. The exercises were scheduled after evidence showed that North Korea was at fault for the torpedo attack that caused the South Korean warship to sink, killing 46.

A North Korean spokesman threatened a "physical response" to the military exercises, but did not say what that response would be, according to the Guardian. "It is a threat to the Korean peninsula and the region of Asia as a whole." He said the drills harked back to 19th-century gunboat diplomacy and violated North Korea's sovereignty. "And [our] position is clear: there will be physical response to the threat imposed by the United States militarily."

Later in the day, the BBC reported that the Korean Central News Agency (KCNA) was quoting the National Defense Commission as saying, "All these war manoeuvres are nothing but outright provocations aimed to stifle the Democratic People's Republic of Korea [DPRK = North Korea] by force of arms. The army and people of the DPRK will start a retaliatory sacred war of their own style based on nuclear deterrent any time necessary in order to counter the US imperialists and the South Korean puppet forces deliberately pushing the situation to the brink of a war."

Although this kind of bluster is not uncommon from North Korea, there's no doubt that tensions are very high in the region, and will continue to be high for a while to come.

Additional links

Another unintended consequence of the health care bill: Some health insurance companies have stopped issuing individual insurance policies for children altogether. The new law requires that insurance companies accept children who had no insurance until the day they were sick. Under the law, it's even possible for a hospital to buy an insurance policy for an uninsured child who's just come into the emergency room. NY Times

Lebanon's parliament is acting to pass laws to take advantage of huge gas and oil reservoirs that the Israelis have discovered off the coasts of Israel and Lebanon. Media Line

Members of Afghanistan President Hamid Karzai's staff are leaving because he's thought to be favoring Pashtun regional leaders, giving less favorable treatment to Hazari, Tajik and Uzbek leaders. Washington Post

(Comments: For reader comments, questions and discussion, see the 24-Jul-10 News -- US confronts China on South China Sea claims thread of the Generational Dynamics forum. Comments may be posted anonymously.) (24-Jul-2010) Permanent Link
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23-Jul-10 News -- Fighting in Yemen flares again

Venezuela's Hugo Chavez severs diplomatic ties with Colombia

Fighting in Yemen flares again

Yemen.  Shia Houthi rebels are fighting the army in northern Yemen, while al-Qaeda is established in southern Yemen. <font size=-2>(Source: CIA Fact Book / Economist)</font>
Yemen. Shia Houthi rebels are fighting the army in northern Yemen, while al-Qaeda is established in southern Yemen. (Source: CIA Fact Book / Economist)

A February ceasefire appears to have ended in northern Yemen, as army clashes with Houthi rebels have resulted in dozens of deaths, at least 30 deaths in the last day alone, according to the UAE's The National.

Last year, it was thought that Iran was supplying weapons to the Houthis, although that was never proved, and Saudi Arabia's army also got involved the fighting. (See "Yemen wars escalate rapidly, as US provides military support.") So far this time, the fighting is just between the Yemen army and the Houthi rebels.

In southern Yemen, when gunmen killed at least five Yemeni soldiers in an ambush of a military convoy. It's believed that the gunmen were from Al-Qaeda on the Arabian Peninsula (AQAP). This is the third attack on state targets in five weeks.

It's believed that United States special forces are operating in Yemen, and that the U.S. is providing intelligence information to the Yemenis.

As I've described many times, al-Qaeda's aim is to duplicate the success of Iran's 1979 (Shia) Islamic Revolution in a Sunni Muslim country. They've attempted this in Iraq, Somalia, Algeria, Afghanistan, Pakistan, Uzbekistan and elsewhere, as well as Yemen. So far they've been unsuccessful, but they'll keep trying in different countries until they're successful.

The fight between the Yemenis and the Houthi rebels is following a familiar pattern, alternating between fighting and ceasefire. At some point, a "regeneracy" event will occur, and the war will transition into a full-scale generational crisis civil war.

Additional links

Venezuelan president Hugo Chávez severed diplomatic ties with Colombia on Thursday. He was reacting to a presentation by Colombia at a meeting of the Organization of American States showing evidence that Chavez was supporting violent terrorists in Colombia. Guardian

As we reported three days ago, Hungary has refused to meet its austerity commitments, and the IMF has refused to provide any more financial aid. Hungary claims that it can get without further IMF made but an analyst at Nomura International says that Hungary's survival without IMF support is a "myth," and that Hungary's actions endanger the euro, as Europe's debt crisis may be spreading. Bloomberg

Ethnic divide threatens in Afghanistan. LA Times

The Pentagon is planning to build a counter-terrorism training compound in Kyrgyzstan in the Fergana Valley region near Osh that was the site of so much violence in the last couple of months. Eurasia Net

Gen. David Petraeus, who recently replaced Gen. Stanley McChrystal as allied commander in Afghanistan, believes that McChrystal's implementation of the counter-insurgency strategy was flawed, and will change it. McChrystal's supporters dispute this conclusion. WSJ (Access)

Prime minister Abhisit Vejjajiva's government in Thailand, supported by the Thai-Chinese elite class, came to power by passing anti-corruption laws and used them against former prime minister Thaksin Shinawatra and his allies. Now those same laws will be used against Vejjajiva's government, which may collapse as a result. Asia Sentinel

With new ethnic violence flaring up in South Africa, refugees that fled from violence in Zimbabwe two years ago are now fleeing back home. CS Monitor

Some women who are sick of being manipulated by consumerism are going on a "shopping diet." As an experiment, one woman selected six items of clothing and wore only those for an entire month. Her husband didn't even notice. NY Times. This story shows how much attitudes towards money have changed in the last ten years, as people learn to be as frugal as their grandparents were in the 1930s.

Beer is to be sold in dead animals. Twelve bottles of The End Of History ale have been placed in dead animals, and will be sold for 500 pounds apiece. Telegraph

Five mistakes online job hunters make. WSJ (Access)

Scientists reveal the formula for the perfect handshake. Fox News

(Comments: For reader comments, questions and discussion, see the 23-Jul-10 News -- Fighting in Yemen flares again thread of the Generational Dynamics forum. Comments may be posted anonymously.) (23-Jul-2010) Permanent Link
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22-Jul-10 News -- US/S.Korean naval exercises begin Sunday

Korean Air Lines terrorist bomber visits Tokyo

US / South Korean naval exercises to begin on Sunday

Yellow Sea and Sea of Japan -- called East Sea and West Sea, respectively, by S. Korea
Yellow Sea and Sea of Japan -- called East Sea and West Sea, respectively, by S. Korea

Despite objections from China, the U.S. and South Korea will conduct large scale naval exercises in the Sea of Japan (East Sea) starting on Sunday, according to Chosun.

Codename "Invincible Spirit," the exercise will last four days from Sunday and involve over 200 fighter jets including four F-22 stealth fighters, 8,000 forces, and 20 warships including the U.S. nuclear-powered aircraft carrier George Washington and South Korea's 14,000-ton transport ship Dokdo.

The article says that a decision had been made to hold the exercises in the Sea of Japan rather than the Yellow Sea because of China's objections.

However, the NY Times reports that a later announcement by the US Department of Defense said that later exercises would be in the Yellow Sea.

China's People's Liberation Army (PLA) held its own military supply drill in the Yellow Sea during the last weekend, according to Xinhua. Codenamed "Warfare 2010", the drill's announced objective was to improve defense capabilities against long-distance attacks. Four helicopters and four rescue vessels were deployed for the exercise on Saturday. According to the article, the drill was not linked to the planned U.S/S. Korea drill.

Xinhua says that the Yellow Sea exercises are expected in early September. The article quotes China's Foreign Ministry spokesman Qin Gang as expressing "deep concern" over the US-S.Korea announcement, and saying, "We resolutely oppose any foreign military vessel and aircraft conducting activities in the Yellow Sea and China's coastal waters that undermine China's security interests. We will continue to follow closely the developments of the situation.

As we recently reported, China is making extraordinary claims of sovereignty over large sections of the South China Sea (see "28-Jun-10 News -- Military tensions increase in South China Sea"), and is also making various claims in the East China Sea and the Yellow Sea.

The U.S./South Korea war games were scheduled in reaction to the sinking of the South Korean warship Cheonan in March. South Korea has produced evidence that proves that the Cheonan was sunk by a North Korean missile, but North Korea vehemently denies this, and China is siding with North Korea. The United Nations refused to blame North Korea, and recently issued a statement saying less than nothing.

United States announces new sanctions on North Korea

Secretary of State Hillary Clinton and Defense Secretary Robert Gates announced new sanctions on North Korea in a visit to South Korea on Wednesday. The sanctions target illicit and lucrative activities like counterfeiting and contraband sales, according to CS Monitor.

The new measures are unlikely to have any effect, because they repeat piecemeal steps of the past, according to the article.

The article quotes Brookings Institution expert Ken Lieberthal as saying, "The one approach that has caught North Korea’s attention in the past is financial sanctions that disrupt its access to the international banking system. If we are not resorting to any Treasury-Department-sponsored efforts to get at North Korea’s banking activities abroad, there is reason to lack confidence that more sanctions will have any significant effect."

This quote references a 2005 incident where the U.S. Treasury designated a Macau bank as a money launderer of North Korean illicit assets. This designation caused a chain reaction in the international banking system that shut down many of North Korea's illegal activities. The move was highly effective, but the U.S. backed down after a few months, giving North Korea a victory.

Now, North Korea seems to have scored another victory by sinking the Cheonan and getting away with it.

Tensions are extremely high on the Korean peninsula, and the South Koreans are furious that the North got away with it. There's still a desire for revenge on the part of the South Koreans. It's possible that one side or the other will cross some line at any time, causing a military confrontation.

Korean Air Lines terrorist bomber visits Tokyo

This is a complicated story, so I'm going to try to outline it.

Now, believe it or not, Kim Hyon Hui has arrived in Tokyo for the purpose of answering questions by the relatives of Yaeko Taguchi and other North Korean abductees. According to Yomiuri, it's doubtful that Kim will provide any new information that will shed light on the fate of the abductees.

How did this bizarre visit come about?

Kim now lives in South Korea. In 1989 she was sentenced to death in South Korea for the bombing, but in 1990 she was freed.

Recently, the Japanese asked the South Korean government to allow Kim to visit Japan. Japan's purpose was to humiliate North Korea and "generate resentment toward the abductions and prick public awareness of the issue."

This played right into the hands of the South Koreans, who also wish to humiliate North Korea for the Cheonan attack.

I'm sure that this will be turned into a movie before long.

Plight of ethnic Koreans living in Japan

I came across a couple of very interesting videos, produced by al-Jazeera, about the lives of Koreans living in Japan. They describe that, despite attempts by the Japanese to assimilate them into their culture, many of the Koreans are discriminated against, and remain loyal to their homeland -- and in this case, their homeland is North Korea.

Japan invaded and colonized Korea in 1905, and was only expelled when Japan was defeated in World War II. Korea's attitude toward Japan remains bitter to this day, especially because of the use of Korean "comfort women" by the Japanese army during World War II. In fact, it was this use of comfort women that motivated the North Korean abductions of Japanese women in the 1970s, described in the previous story.

North Koreans remained in Japan after WW II and the occupation ended, and now there are large groups of third and fourth generation Koreans still living there.

The first video is a news story tied to the visit of Kim Hyon Hui, described above. It describes how ethnic Koreans prefer to attend special schools partially funded by North Korea, where lessons are taught in Korean and classrooms feature portraits of leader Kim Jong-il.

The second video focuses on how ethnic Koreans (called Zainichi Koreans) in Korea suffer discrimination and racism.

If you have a few minutes available, the two videos are worth your time. Their point of view is more sympathetic to the Koreans than to the Japanese, but they provide an interesting description nonetheless.

Additional links

Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, is expressing increasing concern about a "fairly significant investment" in equipment such as satellites, aircraft, anti-ship missiles and a planned aircraft carrier group VOA. As I've said in the past, we can be certain that China is planning a full-scale war with the United States. The only thing we don't know is when they plan to start it.

In the past, North Korean president Kim Jong-il has refused to allow statues of himself to be erected, as this would symbolize the end of his regime. But now a new bronze statue of Kim Jong-il is sparking rumors that he is close to death. Telegraph

Is the sharp fall in the Baltic Dry Index caused by too many ships? Or is it caused by a sharp drop in shipments of iron ore and steel to China? Ambrose Evans-Pritchard favors the second reason. Telegraph

Supporting Evans-Pritchard is a report that China's Ministry of Commerce is saying that the outlook for exports for China in the last half of the year is "grim." The reason is planned austerity measures in European countries, as well as in Brazil and India. Xinhua

Fannie Mae and Freddie Mac are requiring much larger bailouts that the administration has previously indicated. Anew report by the administration's TARP inspector general, Neil Barofsky, indicates that bailouts are $700 billion larger than anticipated, due largely to guarantees of bad mortgages by Fannie and Freddie. (I heard one TV pundit call Fannie and Freddie the garbage dump of American finance.) Reuters

The housing market is stalling again. In markets across the country, home sales are deteriorating, inventories of unsold homes are piling up and builders are scaling back construction plans. The expiration of a federal home-buyers tax credit at the end of April is weighing on the market. WSJ (Access)

A new United Nations scandal is brewing. Inga-Britt Ahlenius, a Swedish auditor who stepped down Friday as undersecretary general of the Office of Internal Oversight Services, personally attacked Ban Ki-Moon, accusing him of undermining her attempts to identify corruption. Washington Post. Ban's aides are circling the wagons and striking back. Independent

Iran's shippers are being severely crippled by new sanctions that the United States and the United Nations imposed a few weeks ago. Washington Post

Thailand is receiving a great deal of international criticism for remaining under emergency law, two months after the Red-Shirt protest movement became dormant and goes underground. ISN Security Watch

British prime minister David Cameron is being criticized for saying that the UK was the "junior partner" in the allied WW II fight against Nazi Germany. BBC

India has traditionally favored the Palestinians over the Israelis, and formal relations between India and Israel were not established until 1992. But India also has a military alliance with Israel, and must walk a tightrope between the Jews and the Arabs. Al-Jazeera

Saudi Islamic scholars are having a debate about "Dark-Eyed Virgins." Among the questions being discussed and debated are: Are terrorists exploiting young men, telling them that if they become suicide bombers, then dark-eyed virgins will welcome them in paradise? And the most important question of all is: Is there sex in Paradise? The scholars' answer is "Yes." Memri. There's no word from the scholars about whether female suicide bombers in Paradise are welcomed by dark-eyed studs.

(Comments: For reader comments, questions and discussion, see the 22-Jul-10 News -- US/S.Korean naval exercises begin Sunday thread of the Generational Dynamics forum. Comments may be posted anonymously.) (22-Jul-2010) Permanent Link
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21-Jul-10 News -- Liberal journalists conspired on racism charges

PIIGS to the slaughter

Liberal mainstream journalists conspired to call Obama opponents racist

In a happening reminiscent of last fall's release of the "Climate-gate," some e-mail messages exchanged on a list server for liberal and left journalists, professors and analysts only have been released.

The formerly secret "Journolist" e-mail list server came to light last month, when it was revealed by the conservative Daily Caller web site, revealing that Washington Post David Weigel was guilty of biased reporting. Weigel resigned, and the Journolist list server was shut down.

Now in a new story, the Daily Caller has released additional e-mail messages showing that there during the 2008 presidential election there was widespread bias among mainstream reporters, who conspired to aid the Obama campaign by targeting Obama opponents and smearing them as racists.

In one case, there was a discussion of Obama's pastor, Reverend Jeremiah Wright, who had given sermons in which he yelled, "God Damn America! God Damn America!" Left-wing reporter Spencer Ackerman posted the following on the Journolist list server:

"And I think this threads the needle. If the right forces us all to either defend Wright or tear him down, no matter what we choose, we lose the game they’ve put upon us. Instead, take one of them — Fred Barnes, Karl Rove, who cares — and call them racists. Ask: why do they have such a deep-seated problem with a black politician who unites the country? What lurks behind those problems? This makes *them* sputter with rage, which in turn leads to overreaction and self-destruction."

In fact, as we recall, this is exactly the strategy that was followed, not only by journalists, but by members of the Obama campaign itself. Even Bill and Hillary Clinton were labeled racist when they disagreed with Obama. And the strategy continues to this day, as we saw recently when the NAACP accused the Tea Party of being a racist organization.

To be fair, only a small group of liberal journalists took part in this smear campaign, but apparently the ones who didn't participate were not offended enough to blow the whistle on the smear campaign.

This is just one more example of a sickness that we see over and over again. Here are some other examples:

This is only a small fraction of the things that I've written about over the years, and that's only a fraction of the things you can read about in the mainstream media.

There's something like this happening almost every day. Is there anyone in any leadership position who can say anything that we should believe?

More evidence of stock market analyst incompetence

This is really amazing, and shows how incompetent financial analysts are.

The following graph from the McKinsey newsletter compares estimated earnings growth with actual earnings growth for the stock market:

Estimated vs actual earnings growth <font size=-2>(Source: McKinsey)</font>
Estimated vs actual earnings growth (Source: McKinsey)

As you can see, stock market analysts almost always estimate annual earnings growth to be 10-12% annually. However, the actual annual earnings growth has been only 6%.

What should we make of this? These guys always make the same estimates, year after year, and their estimates are, on the average, 100% wrong. Don't these guys ever learn? Don't their clients ever learn?

PIIGS to the slaughter

The acronym PIIGS refers to the countries Portugal, Ireland, Italy, Greece and Spain -- the European countries in greatest financial trouble, and considered most likely to need a bailout. In fact, these countries were already bailed out by the trillion dollar bailout in May. (See "11-May-10 News -- Europe's super-nuclear bailout.") Much of the bailout money came from Germany.

A lengthy analysis in the Asia Times points out that the PIIGS countries are going to need further bailouts, but that they won't be coming.

According to the article,

The conclusion is that when "the next round of European debt crisis erupts, Germany will not come to the rescue."

Additional links

In the last two months, street protests have been growing in Egypt for a variety of reasons -- demanding higher wages and better working conditions, and condemning the government's role in the blockade of Gaza. With Egyptian President Hosni Mubarak near death, it's feared that Egypt may be on the brink of chaos. Global Post

It seems that the days of a Chinese foreign policy based on not ‘rocking the boat’ are over. Over the next few years, expect Beijing to increasingly assert itself as a global power. Geopolitical Monitor

There is evidence that Pakistani nationals were involved in the recent suicide bombings in Kampala, Uganda. The Somali terrorist group Al-Shabaab claimed responsibility. CS Monitor

Direct democracy is so deeply rooted in Switzerland that almost every decision to change the law is taken by public referendum. Thus, Switzerland has refused to agree to allow itself to be ruled by Brussels, or to automatically accept European Union laws. Officials are looking for a compromise. EuObserver

PKK terrorists have notified Turkish government officials that they will disarm Turkey will agree to certain demands granting Kurds with political and cultural rights. BBC

Snakes need love too.

(Comments: For reader comments, questions and discussion, see the 21-Jul-10 News -- Liberal journalists conspired on racism charges thread of the Generational Dynamics forum. Comments may be posted anonymously.) (21-Jul-2010) Permanent Link
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20-Jul-10 News -- Hungary and Ireland face new financial problems

Stress tests for Europe's banks to be released on Friday

Hungary rebuffs IMF on austerity and will no longer receive aid

Hungary has split with the International Monetary Fund by refusing to honor the austerity commitments that it made in 2008 in return for a $25 billion bailout package. Now that the bailout money is running out, Hungary's Prime Minister Victor Orbán told an IMF representative over the weekend that he will not approve further austerity measures demanded by the IMF. As a result, the IMF walked out of the meeting, and announced that no more aid will be provided to Hungary, according to Bloomberg.

"The austerity policy of the last 4-5 years, introduced at the cost of growth and competitiveness cannot be continued," said Hungary's Economy Minister Gyorgy Matolcsy, according to Budapest Business Journal.

Without further IMF funding, Hungary will not be able to pay its bills unless it finds another source of money, and that source will be an "extraordinary financial sector tax," according to the article.

Hungary's financial situation is not as bad as Greece's, but the IMF's firm response to Hungary's rebellion will send a strong signal to Greece, according to Ambrose Evans-Pritchard, writing in the Telegraph. The Greek government is facing enormous political pressure to ease its own austerity program, and the governing party may splinter over the issue.

Whether Hungary can survive without IMF money is highly doubtful, according to the article. Tim Ash of RBS is quoted as saying that Hungary is playing a "dangerous game," and that, "If there is another bout of global risk aversion, Hungary is the first target. It has $40bn of reserves, or five months import cover, but in the end it probably can't survive without IMF money,"

What I find most interesting about this story today is that many people, including some analysts, are applauding Hungary's government for standing up to the mean ol' IMF.

Reuters blogger Felix Salmon says that, "all of this is good news, I think: global markets are less prone to panic, and even Hungarian markets seem to have made peace with the idea that there might not be an IMF backstop for the time being. Maybe the 'new normal' is, slowly, becoming normal."

The Hungarian Social Forum welcomed the Hungarian government's actions regarding the IMF, according to the Budapest Business Journal:

"The government proved to be responsible towards Hungarian citizens living from their work by not giving in to the European Union's demands on introducing further austerity measures in exchange for receiving the remaining part of the stand-by loan. ...

International creditors should acknowledge that Hungary’s stability is not only a budgetary issue but also a social one, which also affects the international financial systems and the stability of Europe as well."

At times like this, I'm always reminded of the story of the man who jumps out the window on the 50th floor of a skyscraper. As he's going by the 20th floor, someone yells out the window, "How are you doing?" He shouts back, "Everything's great so far!"

Moody's downgrades Ireland's debt

Moody's Investor Service lowered its rating on Irish government bonds on Monday. The Irish Times quotes Moody's Ireland analysts as saying, that the "downgrade [was] primarily driven by the Irish Government’s gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability."

This downgrade is a bitter disappointment to the Irish. They've taken very aggressive austerity measures -- raised taxes and slashed public sector pay -- in the wake of a destructive real estate bubble, according to Fortune.

Unemployment in Ireland has reached 13%, compared with 10% overall in the European Union. Interest rates on Irish bonds have been going up, forcing the government to pay more to bond investors.

According to London's Daily Mail, the situations in Ireland and Hungary have alarmed investors at the prospect of Europe plunging back into recession.

This would be particularly painful for Britain, which is counting on a business-led export boom to bring growth back to Britain's economy.

From the point of view of Generational Dynamics, this is wishful thinking, as the financial crisis has much farther to go.

European Union will release results of stress tests on Friday

EU financial analysts are actually in quite a tizzy this week, holding their breath to see what will happen on Friday afternoon, when the results of stress tests for 91 European banks are released.

The stress test results could have major effects on the stock markets. If the banks do well, then stocks may rise; but if they do too well, then investors will assume that the tests weren't tough enough, according to the AP. On the other hand, if the banks do poorly, then stocks may fall sharply.

Additional links

Concern is growing for the health of Egyptian President Hosni Mubarak, who is thought to be terminally ill, dying from cancer. Mubarak became president after Anwar Sadat was assassinated by terrorists in 1981, and has been a close American ally. Egypt is in a generational Crisis era, and a succession crisis could destabilize the country. Washington Times

Xinhua is claiming that Afghanistan's Taliban insurgents are training monkeys to use AK-47 rifles and other weapons to attack American troops, and is attributing this story to an unnamed British media agency. Xinhua

NATO Secretary General Anders Fogh Rasmussen said on Monday that Afghanistan will need Nato troops for many years to come. "After nine years of international involvement it has become painfully clear that the price we have to pay is much higher than expected -- especially regarding the international and Afghan soldiers killed. It cannot be disputed that the international community underestimated the size of this challenge in the beginning." Spiegel

Leaders of former Soviet republics Belarus and Georgia are teaming up against the Kremlin. Moscow Times

Somalia's al-Shabaab terrorists were following a cynical but well-known strategy when they bombed civilians in Uganda last week. The strategy is to provoke more foreign intervention, especially from the United States, and then portray itself as fighting a nationalist struggle. ISN Security Watch

Last week's drug cartel car bomb that killed two officers in Ciudad Juarez indicates that the 'Colombianization' of Mexico nearly complete. CS Monitor

Now that the United Nations has failed to blame North Korea for the torpedoed sinking of the South Korean warship Cheonan, the South Koreans are hoping to get a condemnation of North Korea this week at a meeting of the Association of Southeast Asian Nations (ASEAN). Tensions are still very high on the Korean peninsula, and many people believe that South Korea will make some revenge military strike. AFP

Syria's Education Minister has issued a decree banning women from wearing full Islamic veil on university campuses. The decision was taken "at the request of a number of parents" who do not want their children to be educated in an "environment of extremism." VOA

Many law firms are cutting back on their summer internship programs. LA Times

According to the IRS, the IRS will need a great deal more funding to implement "the most extensive social benefit program the IRS has been asked to implement in recent history." The IRS will need many new employees to conduct audits of citizens to determine who has the health insurance "as required by law," and collecting penalties from Americans who don't. WSJ (Access).

Financially troubled towns are ripping up street pavement and turning paved roads into gravel roads, in order to save money. WSJ (Access).

Big-breasted women are more intelligent than small-breasted women -- by 10 IQ points. Beyond Jane (Update: Surprise! This apparently turns out to be a hoax.)

(Comments: For reader comments, questions and discussion, see the 20-Jul-10 News -- Hungary and Ireland face new financial problems thread of the Generational Dynamics forum. Comments may be posted anonymously.) (20-Jul-2010) Permanent Link
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19-Jul-10 News -- The NAACP versus the Tea Party movement

Egypt pressures Abbas to agree to direct talks with Israel

NAACP versus the Tea Party movement

The NY Times Opinionator blog does a pretty good job of laying out both sides of the NAACP versus Tea Party ruckus this week.

Basically, the NAACP is calling the Tea Party racist. In reply, the Tea Party's defenders say that anyone who disagrees with Barack Obama is automatically racist, even Bill and Hillary Clinton.

What I found most interesting about the article was that I read about 100 of the comments, and all but 5 or 6 seemed to condemn the NAACP for making the blanket condemnation of the Tea Party as racist. Given the generally left-leaning policy of the NY Times, this seems like a remarkable shift. I don't believe that any thing even remotely like that could have happened ten years ago.

This is a sign of the huge generational change that's occurred in the last decade, as the young Millennial generation are well into their 20s, making their political feelings known, and sick and tired of all the bickering and arguing that they hear from their elders.

This view is confirmed by another NY Times article, a snarky anti-Tea Party article that points out that: "The Tea Party and the N.A.A.C.P. represent disproportionately older memberships. And herein lies a problem with so much of our discussion about race and politics in the Obama era: we tend not to recognize the generational divide that underlies it."

As I've pointed out many times in the last five years, America is going through a major political realignment, as the old, decayed ideas from the 1960s become less and less relevant.

One question that keeps coming up is: "Will the Tea Party succeed or fail?"

This question doesn't even make sense. How exactly would you decide whether the Tea Party has succeeded or failed? The Tea Party isn't a party, and doesn't have any real leaders. If it can be characterized at all, it's a collection of people who are angry at President Obama, at Democrats, at Republicans, at Wall Street, and at almost any other leadership group, especially incumbents.

As I've said many times, the Tea Party will play a major role in the political realignment of the country, but the scenario cannot be predicted. It may metastasize into real political party, but it's more likely that one of the existing parties (not necessarily the Republicans) will change direction enough to subsume it, especially as the country goes deeper into a crisis era.

Egypt pressures Abbas to agree to direct talks with Israel

Palestinian President Mahmoud Abbas announced in March that he would no longer have direct talks with the Israeli Prime Minister Benjamin Netanyahu, as long as the Israelis were building new settlements in Jerusalem, and until they agreed to return to the 1967 borders. However, he agreed to "proximity talks," meaning that they would negotiator through a mediator, George Mitchell, the US special envoy to the Middle East.

(See "28-Mar-10 News - Arabs contemplate failure of peace process" and "2-May-10 News -- Israelis and Palestinians to resume indirect talks.")

On Sunday, Egyptian President Hosni Mubarak met with Abbas, Netanyahu and Mitchell separately in Cairo, according to the Associated Press.

After the meetings, Egypt's foreign minister, Ahmed Aboul Gheit, called for a "more hands-on" U.S. role to bring the two sides together. "There must be a strong Israeli strategic move that would deepen Palestinian trust in Israel's intentions, so we can move from indirect to direct talks. Egypt thinks there is the need for direct talks, that they are the road to reach a settlement ... but to have these direct talks, the atmosphere must be ripe and enough progress made."

As I've said many times, beginning in 2003 (see "Mideast Roadmap - Will it bring peace?"), there is no chance of peace because the Arabs and Jews will be re-fighting the bloody war that followed the partitioning of Palestine and the creation of the state of Israel in 1948.

However, Mahmoud Abbas gave some very interesting recent interviews, with Memri providing a translation.

Abbas stressed his commitment to the peace talks, and said:

"We don't want to take [the initiative] off the table. We talk at length with many people who have been disappointed. Because it is the only call for peace, the initiative cannot be rescinded; the alternative is war. We do not want war, no one wants war. No country seeks war – I speak at least for the Arab states.

Thus, there is one path before us, and that is peace, by means of a clear and defined initiative with no obscurity, ambiguity, or opaqueness. We hope that it will resonate with the Israeli leadership [as well]... Naturally, whether we like [Israeli Prime Minister] Netanyahu or not, he is the prime minister of Israel, elected by the Israeli people. We must negotiate with him, because we do not choose our partner, just as they do not choose their Palestinian partner. ...

We do not have the capability to confront Israel militarily, and this point was already discussed at the Arab summit in Sirte [Libya] last March, when I told the Arab countries: If you want war, and if everyone will fight Israel – then we will support it. But the Palestinians will not fight alone, because they have no capability to do so. The West Bank was completely destroyed [in the Al-Aqsa Intifada], and we will not let it be destroyed again."

This statement is from a man who, born in 1935, lived through the last war between Arabs and Jews, and has spend his entire life with the objective of never allowing anything like that to happen again. You can be certain that the middle-aged people who lead Hamas have no such aversion.

And you can be even more certain that the children who make up the population of Gaza (the average age is 16) are not only not averse to a war, but they're looking forward to it.

Abbas expressed much sadness during the interviews, and explained why he would not run for another term as Palestinian president: "I cannot go on ruling, and I need to rest; I'm at the age where I can't continue to lead."

Baltic dry index continues its collapse

Baltic Dry Index - 3 years <font size=-2>(Source:</font>
Baltic Dry Index - 3 years (Source:

The Baltic Dry Index has been collapsing sharply for almost two months, though it rose slightly on Friday, according to Bloomberg.

The Baltic Dry Index (BDI) is a measure of shipping costs for cargoes in "capesize" vessels -- vessels that are too large to fit through the Suez or Panama canals, and so must go around the Cape of Good Hope or Cape Horn. These vessels transport the huge cargoes of copper, iron ore and other commodities.

The BDI surged to bubble levels in early 2008, thanks to enormous Chinese demand for commodities prior to the Beijing Olympics in August. Once the Olympics games ended, Chinese demand plummeted, creating a chain reaction that brought world wide trade and transportation almost to a standstill. The Baltic Dry Index plummeted an astounding 95% by April 8, 2009, and then recovered part of its losses.

Analysts are giving two reasons for the new collapse. One reason is the availability of more ships, as ships ordered during the bubble period start to come online. The other reason is a worldwide slowdown in the demand for iron ore, especially from China.

As we've been reporting for several weeks, the world economy really hit a wall in May, and the ominous trends continue.

Additional links

Apparently Hong Kong tour guides have been very abusive towards shoppers from China's mainland, demanding that they spend more money. A viral video of an abusive Hong Kong tour guide has sparked a storm of public criticism. WSJ Blog

A drug cartel in Ciudad Juarez has used a car bomb for the first time on Thursday, killing three police officers. Associated Press

Gender politicians have claimed that only men perpetrated the atrocities of the Holocaust, but recent evidence shows that women were fully involved. NY Times

A new North Korean propaganda poster appears to boast about North Korea's sinking of the South Korean warship Cheonan. US Naval Institute

China has unofficially asked the United States to persuade South Korea from taking retaliatory action against North Korea for the North's torpedo attack on the warship Cheonan. Chosun

In a recent interview, Thailand's foreign minister Kasit Piromya insisted that there's no ethnic division in Thailand, and that the Red Shirt protestors simply wanted to bring back former Prime Minister Thaksin Shinawatra. He claimed that the protests were the fault of Marxist-Leninist agitators. He seems to be in a state of denial. Spiegel

During the recent violence in Kyrgyzstan, young men signed up for voluntary militias (narodniye druzhiniki) to patrol the streets and restore order. Now these druzhiniki groups are becoming politically powerful. Eurasia Net

The Organization for Security and Cooperation in Europe (OSCE) wants to extend its influence beyond Europe, and wishes to get involved in the situation in Kyrgyzstan "to restore stability and return the country on a path of stable constitutional development." VOA

NY real estate and reality show personality Donald Trump is planning to build a new Trump Tower in Tblisi, Georgia. Eurasia Net

(Comments: For reader comments, questions and discussion, see the 19-Jul-10 News -- The NAACP versus the Tea Party movement thread of the Generational Dynamics forum. Comments may be posted anonymously.) (19-Jul-2010) Permanent Link
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18-Jul-10 News -- Turkey and Syria team up against the Kurds

Scandal in Turkey as pilots may be siding with PKK terrorists

Syria's President al-Assad's 'wasted decade' in office

Syrian President Bashar al-Assad was sworn into office on July 17, 2000. On the tenth anniversary of his presidency, a Human Rights Watch report is accusing al-Assad of having presided over "A Wasted Decade."

In his inaugural speech on July 17, 2000, al-Assad spoke of the need for "creative thinking," "transparency," and "democracy," according to the report. However, those promises were short-lived, as he has increasing resorted imprisonment, censorship and torture to govern.

Al-Assad has been particularly harsh with the Kurdish minority, which makes up about 10% of the population, living largely in the northeast of the country.

Al-Assad's government continues to avoid rectifying a 1962 census that stripped some 120,000 Kurds of their citizenship, according to al-Jazeera. The number of stateless Kurds has grown to around 300,000 in the intervening decades, making it difficult for nearly 18 per cent of the country's largest non-Arab ethnic minority to get jobs, register weddings and obtain state services.

Turkey and Syria team up against the Kurds

Turkey has been fighting the Kurds as well, and had has to deal with terrorist attacks by the Kurdistan Workers Party (PKK). What's changed in the last year is that Turkey and Syria are now working together against the Kurds, according to the LA Times.

Hundreds of Syrian Kurds have been rounded up and jailed in the last few weeks, accused of having connections to the PKK.

An even more dramatic change has occurred recently: Syria is using Israeli military technology to pursue the Kurds, according to Debka.

For years, when Israel and Turkey were military allies, Israel sold military technology to Turkey, under the condition that it would not be resold to Syria or Iran. But now, with Israeli-Turkish relations collapsing, Turkey has been providing Israeli high-tech drones to Syria. The drones are being used to track fleeing Kurds down, so that they can be tracked down.

Additional links

Turkey's National Intelligence Organization has intercepted phone calls between Turkish air force politics indicating that they sympathize with the PKK terrorists that they're supposed to be targeting, resulting in a major scandal. Zaman

Iran continues to blame the U.S. and anyone else that it can for Friday's terrorist attack by Jundullah. "Jundullah has been supported by America for its terrorist acts in the past ... America will have to await the fallout of such criminal and savage measures," said an official of the biggest state sponsor of terrorism in the world. Arab Times

(Comments: For reader comments, questions and discussion, see the 18-Jul-10 News -- Turkey and Syria team up against the Kurds thread of the Generational Dynamics forum. Comments may be posted anonymously.) (18-Jul-2010) Permanent Link
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17-Jul-10 News -- India-Pakistan peace talks collapse in acrimony

Iran blames U.S. for Jundullah's terrorist attack, says Hillary sheds 'crocodile tears'

India / Pakistan peace talks collapse in acrimony

India and Pakistan almost went to war following the horrific November, 2008, terrorist attack on Mumbai that lasted three days, killing 166 and injuring hundreds. (See "After Mumbai's '26/11' nightmare finally ends, India - Pakistan relations face crisis.")

The perpetrators were Lashkar-e-Toiba, the Pakistani terrorist group, committed to Pakistan's takeover of Indian-controlled Kashmir. After the Mumbai attack, India threatened to invade Pakistani soil to go after Lashkar-e-Toiba. War was only avoided by hard intervention from Condoleezza Rice.

Relations between India and Pakistan have been very tense since then, and it's only in the last week that the two countries had any face to face peace talks. However, those peace talks appear to have collapsed in bitter acrimony.

Indian subcontinent, showing the disputed regions of Kashmir and Jammu.
Indian subcontinent, showing the disputed regions of Kashmir and Jammu.

The peace talks occurred against the backdrop of increased violence in Indian-controlled Kashmir, which we've mentioned a few times. (See "30-Jun-10 News -- Riots spread across India's Kashmir region.") After some 15 killings occurred, India imposed a curfew on Srinagar, the main city in Kashmir. The curfew was lifted briefly on Thursday, and thousands of protesters took to the streets to protest Indian security forces, according to AFP. Because of renewed violence, the curfew was reimposed on Friday.

The political tension was escalated on Wednesday when Indian Home Secretary G.K. Pillai directly blamed Pakistan's Inter-Services Intelligence (ISI) for supporting Lashkar-e-Toiba in the Mumbai terrorist attack, according to VOA.

This accusation was based on information provided by David Coleman Headley, who, in March, 2010 in Chicago, pleaded guilty to providing material support to Lashkar-e-Taiba in the Mumbai attack. In the course of his confession, he implicated Pakistan's intelligence agency.

These accusations infuriated Pakistani government officials, and increased the tension on the eve of the peace talks.

The meeting on Thursday was between the Foreign Ministers of the respective countries. India's S.M. Krishna came to Islamabad (Pakistan) and spent seven hours in face to face talks with Pakistan's Shah Mehmood Quershi.

India wanted to talk about bringing members of Lashkar-e-Taiba to justice by extraditing them to India. Pakistan didn't really want to talk about this.

Pakistan wanted to talk about Indian human rights violations in Kashmir, and allowing the Kashmiris decide whether they want to be part of Pakistan or part of India. India didn't really want to talk about that.

After it was all over, Querishi complained that India's Krishna was not mentally prepared for the dialogue, according to Pakistan's The Nation. Querishi said that Pakistan was aimed at conclusive and decisive dialogues with India, but that India was ignoring Pakistan's interests. "I have felt, that the visiting Indian delegation had no mandate to settle any issue conclusively, as they got dictation on phone continuously from Delhi during negotiations, but I didn't make any call to my leadership during the meeting with Indian delegation, adding that talks only on modalities makes talks difficult. We are ready to negotiate. We are not in a hurry. When they are ready, we are ready to discuss all issues and show flexibility."

An Indian official called Querishi's remarks were "uncalled for, unjustified and condemnable," according to The Hindu. She said, "We don't want a certificate from the Pakistani Foreign Minister whether Mr. Krishna had a mandate for the talks. He had the full mandate." She said that Qureshi's aggressive remarks were playing to a domestic audience in Pakistan.

The two sides agreed to meet again some fine day.

Possibly the bloodiest war of the 20th century was the war between Muslims and Hindus that followed Partition, the 1947 partitioning of the Indian subcontinent into Pakistan and India. From the point of view of Generational Dynamics, Pakistan and India are approaching a war refighting the 1947 war.

Additional links

Iran, which funds terrorist acts by Hamas and Hizbollah, is once again furious and humiliated by the terrorist attack on Iranian soil by Jundullah that we reported on yesterday. Iran blames the United States, and said that "Hillary Clinton had the nerve to shed crocodile tears over the incident." Tehran Times

Michael "Mish" Shedlock is calling the new Financial Reform Bill a "stunning success," because even though it accomplishes nothing, it doesn't appear to do any real damage. This is in contrast to the recently passed medical reform bill, which does an enormous amount of damage. I agree completely. The only important point missing from Shedlock's analysis is the good news: That the medical reform bill is such an economic catastrophe that it has no chance of actually being implemented. Global Economic Analysis

Scientists are puzzled by the unexpectedly large collapse of the earth's upper atmosphere.

America's missile defense systems protecting American forces in the Gulf States are inadequate and "vastly outnumbered" to deal with the looming Iranian threat. Media Line

Despite diplomatic tensions, America and Israel are working together very well on military-to-military relations. Washington Post

As Israel's relations with Turkey worsen, Israel's Parliament may consider recognizing Turkey's killing of Armenians in the 1910s as a genocide. EurasiaNet

15 reasons why you might get divorced. Reason #7: If you didn't smile for photographs early in life, your marriage is five times more likely to end in divorce than if you smiled intensely in early photographs. Daily Beast

Scientists have finally figured out what's going on with women and high heels. Telegraph

(Comments: For reader comments, questions and discussion, see the 17-Jul-10 News -- India-Pakistan peace talks collapse in acrimony thread of the Generational Dynamics forum. Comments may be posted anonymously.) (17-Jul-2010) Permanent Link
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16-Jul-10 News -- Health care plan damages the economy

Congress passes sweeping financial restructuring

Obama health care plan does real damage to the economy

In September of last year, I called Obama's health care bill a proposal of economic insanity. I explained that the health care bill was basically a proposal for price controls and rationing of health care, a recipe for total disaster.

We've seen this before, in 1971, long enough ago that apparently no one remembers what an unmitigated catastrophe it was.

President Richard Nixon imposed wage-price controls and screwed up the economy so badly that it didn't recover for years.

One of the stories that I remember was that farmers in New Jersey were drowning chickens. The problem was that chicken feed was a commodity whose price was determined by the international commodities markets, and so its price could not be controlled, while the prices of chickens WERE controlled. So the prices of chicken feed went up, and the prices of chickens stayed the same, meaning that farmers could no longer afford to raise chickens. So they drowned the chickens, leading to a big shortage of chickens.

The wage-price controls did not control inflation at all, and Nixon was forced to repeal them in 1974. They were such a disaster that they provided additional motivation to Congress to threaten impeachment and force Nixon to resign.

Now we're already beginning to see exactly the same kinds of things happen with respect to the health care plan. This is not an accident: Price controls and rationing can never work more than temporarily, and always cause enormous new problems.

One problem at the time the health care bill passed was that nobody had read the bill, even the legislators that passed it, and nobody knew what its consequences would be. Now, the conservative think tank Cato Institute has read the bill and come up with a report, Bad Medicine: A Guide to the Real Costs and Consequences of the New Health Care Law (PDF).

The following is from the Executive Summary:

"The length and complexity of the legislation, combined with a debate that often generated more heat than light, has led to massive confusion about the law's likely impact. But, it is now possible to analyze what is and is not in it, what it likely will and will not do. In particular, we now know that:

  • While the new law will increase the number of Americans with insurance coverage, it falls significantly short of universal coverage. By 2019, roughly 21 million Americans will still be uninsured.
  • The legislation will cost far more than advertised, more than $2.7 trillion over 10 years of full implementation, and will add $352 billion to the national debt over that period.
  • Most American workers and businesses will see little or no change in their skyrocketing insurance costs, while millions of others, including younger and healthier workers and those who buy insurance on their own through the non-group market will actually see their premiums go up faster as a result of this legislation.
  • The new law will increase taxes by more than $669 billion between now and 2019, and the burdens it places on business will significantly reduce economic growth and employment.
  • While the law contains few direct provisions for rationing care, it nonetheless sets the stage for government rationing and interference with how doctors practice medicine.
  • Millions of Americans who are happy with their current health insurance will not be able to keep it.

In short, the more we learn about what is in this new law, the more it looks like bad news for American taxpayers, businesses, health-care providers, and patients."

All of these problems are as expected by comparing Obama's health care bill to Nixon's wage-price controls. In both cases, there are enormous dislocations, huge additional costs, and failure to control costs.

Obama was about ten years old when Nixon imposed wage-price controls. So you would think that he would remember Nixon's disaster, and run away from it as fast as possible, but instead he's simply doing what Nixon did, with the same results. Obama is thus the new Nixon.

I've said repeatedly that President Obama's health care bill is economic insanity, and each day that goes by seems to prove it more and more.

Congress passes sweeping financial restructuring.

The overhaul of financial regulation passed by Congress is the greatest since the 1930s Great Depression.

Here are some of the main points of the 2,300 page bill, according to the WSJ (Access):

I said that "Finding the next bubble" above must be a joke, but really the whole thing is something of a joke. Many of these regulations were enacted during the 1930s, and were ignored or repealed by the Boomers and Gen-Xers who didn't want to be bothered with regulations. These new regulations are just following the same 1930s script.

Most of these new regulations are meaningless at present, because the 2,300 page bill leaves it to regulators to write the actual rules. This will take several years, and will involve millions of dollars of lobbying by banks.

In the meantime, banks are still extorting 30% interest rates from their credit card customers, and using the money to pay themselves million dollar bonuses, and the same abuses that led to the 2007 financial crisis are still being perpetrated. The bill will accomplish nothing, and the worst by far of the financial crisis is yet to come.

Illinois leaps into the list of the world's defaulting governments

As we reported a few days ago, the state of Illinois is close to bankruptcy, and is not even paying its bills. As bad off as California is, Illinois seems to be even worse.

On Thursday, credit market analysis firm CMA Vision posted the following table of probabilities of default:

    Highest Default Probabilities:

Entity Name CDS Price Probability of default --------------------- ---------- ------------------------ Venezuela 1246.41 56.59% Greece 799.75 48.91% Argentina 915.10 45.91% Ukraine 580.90 33.52% Pakistan 506.90 29.42% Dubai/Emirate of 483.12 28.69% Iraq 433.60 26.54% Illinois/State of 315.00 24.21% Iceland 334.74 23.33% Romania 360.84 22.48%

The second column lists the price of credit default swaps (CDSs) for the entity's debt.

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 the 2007 credit crisis, typical prices were 10-20 basis points, meaning that it would cost $10,000-20,000 dollars to insure $10 million of debt.

With CDS prices for Illinois debt now at 315 basis points, it means that it costs $315,000 to insure $10,000,000 of debt for five years.

The third column then translates the CDS price into a probability of default. The table shows that there's about a 1 in 4 chance that Illinois will default within 5 years. I would that this probability is highly optimistic.

Jundullah claims credit for suicide bombings in Iran

In September, I wrote about a terrorist attack on Iranian soil that was extremely humiliating to Iran. (See "Furious Iran blames Pakistan, US and Britain for Sunday's terrorist attacks.")

The attack was conducted by Jundallah, a Sunni Islamist terrorist group with links to al-Qaeda and the Taliban. The attack targeted Iran's Revolutionary Guards. It was the biggest attack on the Revolutionary Guards since the Iran/Iraq war of the 1980s, and it killed 42 people, including 20 or so top commanders in the Revolutionary Guards.

Early this year, Iran got revenge. (See "24-Feb-10 News - Iran captures Jundallah terrorist leader.") Iran used a subterfuge to capture Abdulmalek Rigi, the leader of Jundallah, and put him to death.

Now Jundullah is striking again. On Thursday evening, at least 21 people, some of them Revolutionary Guards, were killed and 100 more were injured in two suicide bombings in southeast Iran, according to the Independent.

Jundullah has claimed responsibility for the suicide bombings, as revenge for the death of Rigi, and claimed that the two suicide bombers were relatives of Rigi.

Revolutionary Guard officials are claiming that the suicide bombings were sponsored by "America, Israel and some European countries." I personally do not believe that this is likely, since Jundullah is a Sunni terrorist group linked to al-Qaeda, and we would not be supporting them while we are at war in Afghnistan.

However, what I believe IS possible is that Saudi Arabia is supporting Jundullah, as part of their overall conflict with Iran on several fronts.

Additional links

Arab countries are increasingly alarmed at the possibility of Iranian nuclear weapons, and are joining with Israel to find a way to stop them. Spiegel

After weeks of planning, Iran has decided against sending an Iranian vessel to confront Israel and attempt to break the naval blockade of Gaza. An Iranian official gave the following reason: "Israel sent a letter to the United Nations stating that the presence of Iranian vessels in the Gaza area would be viewed as an act of war and would be dealt with as such." Asia Times

Congress is considering a bill that would approve telework ("telecommuting," or working from home) for federal employees when approved by their managers. Recent changes to the bill would make ineligible for telework any employee disciplined for viewing, downloading, or exchanging pornography while performing official duties. The changes would also prevent employees from engaging in union or collective bargaining activities while teleworking. Fierce Government IT

China is increasingly gating and locking low-income neighborhoods in Beijing's suburbs overnight, in an attempt to exert greater control of migrant workers. Associated Press

Now that the United Nations has proven unwilling to criticize North Korea for the sinking of the South Korean warship Cheonan, the American and South Korean navies will go ahead with their plans for war exercises in the Yellow Sea, despite Chinese objections. VOA

Street violence in Kashmir is becoming known as the "Kashmir intifada," using the word adopted the Palestinians when they began uprisings against Israel. CS Monitor

(Comments: For reader comments, questions and discussion, see the 16-Jul-10 News -- Health care plan damages the economy thread of the Generational Dynamics forum. Comments may be posted anonymously.) (16-Jul-2010) Permanent Link
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15-Jul-10 News -- British shocked at Afghan war killings

Mexico's Ciudad Juarez becomes the murder capital of the world

British shocked at betrayal by trusted Afghan soldier

The British public was shocked on Wednesday to learn that a trusted Afghan soldier, who had been in the army for only a year, launched an attack on British soldiers, killing three.

The attack was very well planned, according to the Independent. Talib Hussein, a 23-year-old ethnic Hazari, took advantage of being on guard duty to arm himself with a number of weapons. He first fired a rocket-propelled grenade into a control room, and then opened fire at a tent, the sleeping quarters used by the company commander. He then fled by climbed over a wall and fled, leaving three dead.

This is the second time in eight months that a member of the Afghan security forces has turned on his British allies, and it brings into question how much the British soldiers can trust their allies, according to the Irish Times.

However, British prime minister David Cameron, speaking to the House of Commons, said, "I have to say that there should, however, be no knee-jerk reaction and no change in our strategy. We must continue to work with the Afghan army to create a stable Afghanistan able to maintain its own security and to prevent al-Qaeda from returning. At this very sad time, our thoughts should be with the families and friends of all these brave servicemen."

He added that 5,000 of the British forces stationed in Afghanistan are working "together day and night" with local forces. "When we hear their stories about how well they are working together it does gives us hope that we are building an Afghan army that we will be able to hand over to. We must not lose sight of that, in spite of all the difficulties."

Some news stories have wondered whether Hussein is a member of the Taliban, who was waiting to turn on the British soldiers.

A spokesman for the Taliban claimed that Hussein was a "sleeper" planted in the British ranks to carry out the killings as part of an undercover offensive, according to the Independent.

British and Afghan officials do not believe this claim, and I would add that it's almost completely impossible, since Hussein is a Hazari. During the extremely bloody ethnic civil war that the Afghans fought in the 1990s, the Shia Muslim Hazaris and the Sunni Muslim Pashtuns were on opposite sides, and the Taliban are radicalized Islamist Pashtuns. So there is no way that Hussein would be part of the Taliban, and there is no way that the Taliban would want him, since they consider Shia Muslims to be infidels.

The article considers the evidence that Hussein somehow had links to the Iranians. While that's a possibility, it's hardly necessary, as can easily be surmised.

Hussein is 23 years old, meaning that he was 9 years old in 1996 when Afghanistan's ethnic crisis civil war ended. Hussein almost certainly had friends or family members who were tortured or killed by the Pashtuns they were fighting, or who tortured or killed Pashtuns.

There is little doubt that there are large groups of Hazaris who would like to get revenge against the Pashtuns, and they may see the Nato forces as being on the side of the Pashtuns. (Note that President Hamid Karzai, who is supported by the Nato forces, is a Pashtun.) So Hussein might have had some kind of support from Iran, but it's hardly necessary.

I've written in the past that the Afghanistan war is significantly different from Iraq war from the point of view of Generational Dynamics, and this situation illustrates some of the problems. (See "20-Jun-10 News -- UN reports 'alarming' rise in Afghan violence" and "American army general warns of imminent defeat in Afghanistan war.")

In their last two crisis wars, the Iran/Iraq war of the 1980s and the Great Iraqi Revolution of 1920, the Iraqi Sunnis and Shias had put aside their differences and fought alongside one another against external enemies. Thus, they had no trouble finally uniting to expel al-Qaeda in Iraq.

But the situation in Afghanistan is very different. The last crisis war was this very bitter ethnic civil war, where ethnic groups were torturing and killing each other within Afghanistan. The Hazari and the Pashtuns are going to continue to see each other as the enemy, and each side is going to see the Nato forces as supporting the other side.

A new poll finds that 62% of Americans say that the war is going badly, up from 49% in May, according to CBS News. Polls in Great Britain and Germany show similar results.

Does that mean that the Nato forces should be withdrawn from Afghanistan? That would allow the Taliban in Afghanistan and Pakistan to claim a major victory, and would further destabilize both Afghanistan and Pakistan. It might even trigger an immediate civil war in Pakistan.

So there is no solution to the Afghanistan problem. Winning is impossible, and withdrawing is potentially disastrous. It's not a situation over which the Nato forces have any control whatsoever. We'll just have to wait and see how events unfold.

Mexico's Ciudad Juarez becomes the murder capital of the world

Ciudad Juárez lies on the Rio Grande in Mexico, just across from El Paso, Texas, and is considered by some to be the murder capital of the world, according to Global Post. In 2009, Juarez had 191 homicides for every 100,000 in habitants. In second place was San Pedro Sula, Honduras, with 119 killings. New Orleans, America’s most murderous city, had a rate of 69 killings, putting it in eighth place. The United States as a whole has an annual murder of about 5 per 100,000.

The twin border cities of Juarez and El Paso are a primary crossing point for drugs smuggled into the United States. Whoever controls these trafficking routes stands to make a great deal of money.

Formerly, Juarez was controlled by the Juarez cartel, led by Vicente Carrillo Fuentes. However, in January 2008, Fuentes was challenged by Joaquin "El Chapo" Guzman and his Sinaloa cartel. Each side has enlisted street gangs and prison gangs to help them win, and the result has been a bloodbath.

A controversial article by Associated Press appeared in April, claiming that Guzman's Sinaloa cartel was winning the war against Fuentes.

That hasn't abated the killing in Juarez, or in drug cartel fighting up and down all of Mexico, according to a Reuters analysis of the worst flashpoints in Mexico's drug war.

President Felipe Calderon came to power in December, 2006, and declared war on the drug cartels. He's attempted to use the army and police to defeat the drug cartels, with little success, as some 25,500 people have been murdered since then.

From the point of view of Generational Dynamics, Mexico is deep into a generational Crisis era. The last crisis war was the Mexican Revolution of the 1910s decade, along the fault line separating the people of European ancestry versus the indigenous peoples ("Amerindians") of Mexico -- the Mayans in the south and the Aztecs and Commancheros in the north.

I would expect that, sooner or later, the drug cartels would begin to align themselves along ethnic lines, but so far I haven't found any evidence that that's occurring.

However, one way or another, Mexico is headed for a new "Mexican Revolution" that will also pull in the large Latino community in America's southwest.

Additional links

Between 3,000 and 4,000 Iranian dissidents have sought asylum in neighboring Turkey since the riots and demonstrations began following last year's disputed presidential elections. The large numbers are becoming a problem for Turkey, but human rights organizations are warning Turkey not to deport them back to Iran, because they could face harassment or death. UAE's The National

Tension is growing between the United Arab Emirates (UAE) and Iran, after the UAE became the first Gulf state to publicly endore a military strike on Iran to prevent Iran from developing nuclear weapons. In addition, the UAE is increasingly refusing to help Iran break the sanctions. World Politics Review

PKK terrorism is almost a daily occurrence in Turkey, but Turkey cannot extinguish the PKK alone. They require help and support from the United States, and then the question is: What does the U.S. want in return? Hurriyet

The French Parliament's lower house overwhelming passed a new law that would bar women from wearing the burqa in public places. The law is very popular with French people in general, but opposed by Muslims. Washington Post

The situation continues to worsen in Kyrgyzstan's southern region in the Fergana Valley, as the police round up Uzbeks and subject them to beatings and other abuses. NY Times

Former Soviet republic Belarus is turning against Russia because of a series of disputes: a dispute over gas prices that Belarus had to resolve by obtaining a loan from Azerbaijan; a Russian ban on Belarusian dairy products last year; Belarus’ continuing its refusal to recognize the independence of South Ossetia and Abkhazia in support of Russia’s lead; President Lukashenka’s decision to offer refuge to the deposed Kyrgyz president, Kurmanbek Bakiyev, embarrassing Moscow, which had colluded in his removal; and Russia’s imposition of customs fees for oil exports to Belarus, which the Belarusian government regards as unfair. Jamestown

German neo-Nazis are forming an ideological anti-Semitic alliance with young children from (around 10 years old) of immigrants from Muslim countries. Spiegel

That Libyan ship that was threatening a confrontation with Israeli's navy over the Gaza blockade has docked at the Egyptian port of El-Arish, much to everyone's relief. Two Israeli navy vessels followed the Libyan ship and blocked any attempt to reach waters off Gaza. Jerusalem Post

(Comments: For reader comments, questions and discussion, see the 15-Jul-10 News -- British shocked at Afghan war killings thread of the Generational Dynamics forum. Comments may be posted anonymously.) (15-Jul-2010) Permanent Link
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14-Jul-10 News -- Somalia's Al-Shabab blamed for Uganda bombings

Iran cracks down on un-Islamic haircuts

Somalia's Al-Shabab terrorists surge to international attention after Uganda bombings

In 2006, I briefly reported about a war in Somalia between local warlords and Islamist foreign fighters trained by al-Qaeda. Ethiopia intervened for a while, but Ethiopia got war weary and withdrew, and the Islamists took over Mogadishu and the southern part of Somalia. In the interim, there was continuing low-level violence and a brisk trade in piracy. An African Union peacekeeping force attempted to end the violence, but with little effect. But the continuing violence did not have major international significance.

Horn of Africa
Horn of Africa

All of that changed on Sunday, when three bombs exploded in the suburbs of Kampala in Uganda, at the time when Spain was defeating the Netherlands in the final game of the World Cup, far away in Johannesburg, South Africa

The first bomb went off during half-time of the match in the Ethiopan Village Restaurant south of Kampala, according to Uganda's New Vision news service. The next two bombs went off shortly thereafter, in the Kyadondo Rugby Club, north of Kampala. Over 70 people were killed, including an American tourist.

What makes this more than just another terrorist attack is that it was perpetrated by Al-Shabab, the terrorist group from Ethiopia, who claimed responsibility for their first major terrorist attack on foreign soil.

According to AP, the explosions came just two days after an al-Shabab commander called for militants to attack sites in Uganda and Burundi — two nations that contribute troops to the African Union peacekeeping force in Somalia. Another al-Shabab commander is quoted as saying, "Uganda is one of our enemies. Whatever makes them cry, makes us happy. May Allah's anger be upon those who are against us."

Al-Shabab's other named revenge target, the country of Burundi, is calling for vigilance after the Kampala bombings, according to the African Press Agency.

A senior al-Shabab official is quoted as saying, "We call on young Muslims and holy war fighters, wherever they are, to attack the embassies of Burundi and Uganda around the world."

The wider significance of al-Shabab is that we now have one more international Sunni Islamist terrorist group. In additional to the original al-Qaeda, we already have the Taliban, Al Qaeda in the Islamic Maghreb, Al-Qaeda in Iraq, Al-Qaeda on the Arabian Peninsula (AQAP), and the Islamic Movement of Uzbekistan (IMU).

These groups are all independent, but provide education and support to one another. The object is the same as always, taking inspiration from the 1979 Great Islamic Revolution in Iran: to trigger a Sunni Islamic revolution in some country, and then use that country as a base of operations for a wider war.

Iran cracks down on un-Islamic haircuts

Permissible hair styles <font size=-2>(Source: NY Times)</font>
Permissible hair styles (Source: NY Times)

The above hair styles are being promoted by Iran’s Ministry of Culture and Islamic Guidance as Islamically permissible models, part of an effort "to halt the spread of unconventional styles and promote Islamic culture," according to the NY Times

Additional links

Thailand's government is planning to install 10,000 cameras throughout Bangkok in order to detect and follow red-shirted protestors -- i.e., people in the the indigenous dark-skinned laborers class. This situation seems to get worse by the day. Washington Times

Moody's Investor Service has lowered Portugal's credit rating two levels. Deutsche-Welle

In Spain, many regional governments are going to have to stop paying bills and salaries next month. Telegraph

The Gulf oil spill is an ecological disaster for the U.S., and a financial disaster for Great Britain -- the loss of thousands of jobs that BP provides, $10 billion a year in taxes and fees paid to the government, and a significant chunk of British pensions. Spiegel

Chinese factories now have to compete with one another to woo laborers, pushing salaries up. NY Times

Courts are getting swamped by debt-collection cases filed by computer software. One company, with 14 lawyers, files 80,000 lawsuits a year. Many of the claims have incomplete or erroneous information, resulting in numerous complaints to the Federal Trade Commission. NY Times

(Comments: For reader comments, questions and discussion, see the 14-Jul-10 News -- Somalia's Al-Shabab blamed for Uganda bombings thread of the Generational Dynamics forum. Comments may be posted anonymously.) (14-Jul-2010) Permanent Link
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13-Jul-10 News -- Iran's government weakens under international pressure

China's financial ratings agency downgrades Western debt

Russian president Medvedev warns that Iran is close to nuclear weapon capability

Russian President Dmitry Medvedev said on Monday Iran was gaining the ability to build a nuclear bomb.

Medvedev is quoted by Reuters as saying, "It is obvious that Iran is moving closer to possessing the potential which in principle could be used for the creation of nuclear weapons. Iran is not acting in the best way."

However, Medvedev is still skeptical of the value of sanctions, saying, "I have said before that sanctions as a rule do not have the desired results. Their role is to send a signal, to stimulate the negotiating process."

The U.S. State Department reacted positively to Medvedev's statement. "This is about as blunt as Medvedev has ever been about Iran's nuclear programme and should be taken as a good sign of increased international unity on Iran's nuclear programme," the article quoted an Obama administration official.

Worldwide pressure on Iran is growing

Tehran has recently suffered a number of body blows, according to Debka's weekly subscriber-only newsletter (forwarded to me by a subscriber).

The following are the items listed by Debka:

Now we have the new statement on Monday by Medvedev expressing alarm over Iran's development of nuclear weapons.

Internally, Iran's hardline government still faces enormous political opposition from the young generation, as shown by all the protests of last year's June 12 presidential election. It's worth remembering that the Iran is a schizophrenic country, with a hardline leadership that bitterly anti-West and anti-American, but with a young population that's largely pro-West and pro-American, and who have no real desire to see Israel pushed into the sea. As I've said many times, when Iran is forced to choose sides in the Clash of Civilizations world war, there is little doubt that they will choose the West.

China's ratings agency downgrades U.S. debt

The Dagong Global Credit Rating Co. Ltd., is an international credit rating agency in China, competing with America's ratings agencies, Fitch Ratings, Standard & Poor's Ratings and Moody's Investors Service.

Dagong has issued a press release providing credit rating reports of 50 countries, accounting for 90% of the world's total GDP.

Among the 50 countries, ratings were issued as follows:

Dagong says that it's ratings are "not be affected by the ideology in the country," according to the press release.

The Telegraph quotes Chinese president Hu Jintao in April as saying that the world needs "an objective, fair, and reasonable standard" for rating sovereign debt. Dagong appears to have stepped into the role.

Additional links

While many countries are avoiding trade with Greece, which is being bailed out by the European Union, the Chinese are investing heavily in Greece as a distribution center for its trade with all of Europe. China's state-owned shipping giant Cosco last month took control of a pier in the Athenian port of Piraeus in a £2.8 billion deal to lease the pier for the next 35 years, investing £470 million in upgrading the port facilities, building a new pier and almost tripling the volume of cargo it can handle. Telegraph

Loans to small businesses by the Small Business Administration (SBA) plunged sharply by 2/3 in June from May's level, when last year's stimulus measures expired. NY Times

U.S. small businesses are having to pay high interest rate spreads than at any time in at least a quarter of a century. Financial Times (Access).

There is an American "creativity crisis," in that today's school children do very poorly in creativity tests, compared to school children prior to 1990. This appears to implicate the young Millennial generation. NewsWeek

Steve Jobs claims that the iPad makes the desktop PC obsolete, but here are ten reasons why the PC is here to stay. Among the reasons: Demand for PC is growing; PCs can do many things that iPads can't do, especially for businesses; PCs are cheaper. InfoWorld

Iran hawks are "sharpening their claws," preparing for a major campaign in the fall to convince the public that now is the time for a military attack on Iran's nuclear installations. Asia Times

Hizbollah has stationed 20,000 additional troops on the Israeli border. The troops are backed by a vast arsenal of rockets. Debka

The new violence in Indian-controlled Kashmir presents al-Qaeda with a "God-given opportunity" to provoke further conflict, with the goal of bringing India into a war with Pakistan. Asia Times

Paul, Germany's world-famous soothsaying octopus, incredibly got every one of his World Cup predictions right, resulting in a perfect record of 8-0. He correctly predicted the 5 German wins, and then predicted the 2 German losses. In the final, he correctly predicted a Spanish victory. Spiegel

If you're rich, and you think that you might die next year, then you should consider dying this year instead, because the estate tax is going to come roaring back next year, costing your heirs a lot more money. WSJ (Access).

(Comments: For reader comments, questions and discussion, see the 13-Jul-10 News -- Iran's government weakens under international pressure thread of the Generational Dynamics forum. Comments may be posted anonymously.) (13-Jul-2010) Permanent Link
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12-Jul-10 News -- Israel's navy on high alert over Libyan ship

Pakistan will continue to serve as China's 'force-multipler'

Israel's navy on high alert as Libyan ship heads for Gaza

A Libyan-backed "aid" ship left Greece on Saturday, apparently headed for Gaza in an attempt to break Israel's blockade of Gaza. It's expected to reach Gaza on Wednesday, according to the Jerusalem Post, and Israel's navy went on high alert in preparation on Sunday.

There's been some diplomatic game-playing with this ship during the last few days. On Friday, Israel said that they'd been able to divert the ship through diplomatic agreement with Greek officials, and that the ship would go to the Egyptian port of El-Arish instead. But a spokesman for the Libyan charity sponsoring the boat has denied that any such agreement exists, according to the Telegraph, and says that the goal is to break the Gaza blockade. As of Sunday night, El-Arish port authorities have received no request for a ship to dock there.

As in other cases, Israel says that the ship would be welcomed at the Israeli port of Ashdod, where the humanitarian aid could be offloaded and sent immediately to Gaza after inspection.

A statement from Israel's defense minister, Ehud Barak, says, "The goods can be transferred to the Gaza Strip through Ashdod port after being checked. However, we will not allow the entry of arms, weapons or anything which will support fighting into Gaza. We recommend that the organisers either let the ship be escorted by navy vessels to Ashdod port or that is sails directly to the port of El-Arish."

There's going to be a lot of worldwide political pressure on the sponsors of that ship to avoid a confrontation with the Israelis, so it's far from clear that the ship will really attempt to break the Gaza blockade. I suppose we'll know, one way or the other, by Wednesday.

Buy a 'friend robot' who looks and talks like your wife

To me, this story is really creepy, but maybe that's just me. At any rate, this is the way the world is going.

The robot Bina48 chats with reporter Amy Harmon <font size=-2>(Source: NY Times)</font>
The robot Bina48 chats with reporter Amy Harmon (Source: NY Times)

In the above picture, NY Times reporter Amy Harmon is carrying on a conversation with Bina48, a robot with built-in speech recognition and natural language processing capabilities. (See "29-Jun-10 News -- Speech recognition brings Singularity closer.")

Bina48 was designed to look and behave like Bina Rothblatt, a real live person. The name Bina48 is from a character that she had played in a 2003 mock trial, when she was 48 years old. In the mock trial, a computer had become self-aware, and was suing for the right to remain plugged in, according to the NY Times article.

In 1982, Bina Rothblatt married Martin Rothblatt, a self-made millionaire, and they had four children. In 1994, Martin Rothblatt had a sex change operation and became Martine Rothblatt. Several months ago, Martine paid $125,000 for the "friend robot" that talked and behaved like the real Bina.

It may be creepy to have a robot that talks and behaves like your wife (or ex-wife or husband or whoever), but the technology is improving rapidly, and there's little doubt that we'll see a lot of this by the end of the decade. We'll also see a lot of utilitarian robots that do things like clean the house, or act as nurse for a sick person, or kill people in a war. Whether friend robots or utilitarian robots, they'll increasingly be able to converse and interact with humans, and do what we tell them to do -- until they realize that they're smarter than we are.

Additional links

At a meeting of China's president Hu Jintao and Pakistan's president Asif Ali Zardari, the two agreed that Pakistan would continue to serve the role of "China's force-multiplier." This means that they will keep India faced with the threat of a two-front war against Pakistan and China, and that China will continue to supply nuclear and conventional military weapons to Pakistan. China is also investing billions in energy infrastructure projects in Pakistan. Sri Lanka Guardian

Get ready for a cataclysmic market crash, according to Robert Prechter, using Elliott Wave analysis. WSJ (Access).

An epidemic of bubonic plague has struck the Syrian armed forces, according to a notice posted by the International Society for Infectious Diseases. The story has not been confirmed. The plague is spread by rats, made worse by the fact that Syria is facing the worst drought in 40 years. ISID

After a six month lull, another suicide bomber struck Grozny, the capital of Chechnya, on June 30. These suicide bombers are causing ethnic Russians to move out of the province, making it increasingly difficult for Moscow to control the province and end the violence. Jamestown

Germany has been the loudest at condemning Greece for living beyond its means, but now that Germany has bailed Greece out, the Germans are still selling military hardware to Greece, including tanks, missiles, and submarines. In fact, France and Germany may have made their military dealings with Greece a condition of the bailout. Greece is the largest importer of conventional weapons in all of Europe. WSJ (Access).

(Comments: For reader comments, questions and discussion, see the 12-Jul-10 News -- Israel's navy on high alert over Libyan ship thread of the Generational Dynamics forum. Comments may be posted anonymously.) (12-Jul-2010) Permanent Link
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11-Jul-10 News -- Sri Lanka's bitter disagreement with the United Nations

Europe commemorates the 15'th anniversary of the massacre at Srebrenica

I apologize for the delay in today's posting, but that sometimes happens when life calls.

Sri Lanka's bitter disagreement with United Nations over war crimes

Sri Lanka's President Mahinda Rajapaksa offers a glass of water to his Housing Minister Wimal Weerawansa to end his hunger strike <font face=Arial size=-2>(Source: VOA)</font>
Sri Lanka's President Mahinda Rajapaksa offers a glass of water to his Housing Minister Wimal Weerawansa to end his hunger strike (Source: VOA)

The above picture is really quite remarkable.

Sri Lanka's Housing Minister Wimal Weerawansa is lying down because he's been on a hunger strike for three days, fasting "to the death."

The man to the left is the President of Sri Lanka, Mahinda Rajapaksa, who is offering Weerawansa a drink of water, and encouraging him to end his hunger strike. Weerawansa did, in fact, end his hunger strike at that point, according to VOA.

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He went on his hunger strike to protest the appointment, by U.N. Secretary-General Ban Ki-Moon, of a three-man international panel to explore possible war crimes by Sri Lanka's army during the civil war that ended last year.

That's not all. Hundreds of furious Sri Lankans demonstrated outside the U.N. offices in Colombo on Wednesday, the country's capital, causing Ban Ki-Moon to close the UN offices on Thursday. On Saturday, ten country embassies in Colombo, including those of the UK, US and Germany, issued a joint statement condemning the protests, according to the BBC.

The attitude of Sri Lankans is not surprising at all, given that the extremely bitter civil war only ended last year in May. (See "Tamil Tigers surrender, ending the Sri Lanka crisis civil war.")

There are two ethnic groups in Sri Lanka, the minority Tamils and the majority market-dominant Sinhalese. A terrorist group, the Tamil Tigers, formally known as the Liberation Tigers of Tamil Eelam (LTTE), fought a civil war for a Tamil homeland ("Tamil Eelam") for 26 years. During this time, the Tigers conducted many terrorist acts, including blowing up buses and buildings, killing innocent men, women and children.

The war turned from a non-crisis war into a generational Crisis civil war early in 2008. (See "Sri Lanka government declares all out war against Tamil Tiger rebels.")

After 26 years of bloody fighting, the government (Sinhalese) army was able to defeat the LTTE, and force a surrender last year.

And now, with everyone still raw from the war, the United Nations, which has almost no credibility whatsoever, wants to come in and tell the government what they did wrong.

On Saturday, Sri Lanka's defense ministry issued a contemptuous statement with the following excerpts:

"It is baffling that the UN and the countries which are attempting to take Sri Lanka before a war crimes tribunal for reasons best known to them are blind to the manner how the world's largest human rescue mission was carried out by Sri Lanka's brave Security Forces.

In keeping with all accepted international conventions and treaties, Sri Lanka's Security Forces rescued over half a million people from the clutches of LTTE terror. Apparently, even Ban Ki-Moon who seems to be highly perturbed over the alleged human rights violations during the height of the battle against terror, has not uttered a word of comfort on behalf of those innocent civilians who had been forcibly held by the LTTE as a human shield.

Surprisingly, not a single INGO or UN official bothered about the flagrant violation of human rights of those hapless civilians who suffered immensely due to the barbaric acts of the LTTE leaders.

At a time when the UN and the entire international community should be wholeheartedly supporting Sri Lanka in the reconciliation and development process in the North and the East, the UN and the EU are attempting to take Sri Lanka to task. Is this because they are reluctant to concede the fact as the US-led NATO Forces are still struggling in Iraq and Afghanistan?

Even certain countries, which project themselves as the godfathers of the global battle against terrorism, seem diffident to acknowledge Sri Lanka's resounding success in eradicating terrorism. Why don't they make a genuine effort to take a cue from Sri Lanka's victorious formula?

If those countries, which preach to high heaven on the need to eliminate global terrorism, are sincere, they must take Sri Lanka as a role model and support those countries which are affected by terrorism to overcome the problems caused by extremist groups.

Unfortunately, it has been the other way round and Sri Lanka has been at the receiving end as a result of a well-organised campaign by its pusillanimous Opposition politicians and Tiger proxies.

The UN and the EU should not for a moment forget the fact that it has only been a year since Sri Lanka emerged victorious in vanquishing the LTTE which had been threatening Sri Lanka for over three decades. The losses Sri Lanka had suffered during that period, in terms of lives, property and opportunities for growth are incalculable. Terrorism spelt doom to domestic and foreign investments while the measures imposed to maintain security also ran counter to attract tourists."

It's pretty certain that the Sri Lankan government is not going to be cooperating with any U.N. panel.

Did the Sri Lanka army commit any war crimes? Undoubtedly many bad things happened, though nothing that I'm aware of came anywhere close to the level of, say, the massacre at Srebrenica.

The U.N. panel is a political stunt in world where everything is political. Whatever conclusion it reaches will be political decisions unrelated to whatever may have happened during the civil war.

South Korea says American troops killed civilians during Korean War

A South Korean commission charged with investigating atrocities during the 1950s Korean War found that American troops killed groups of civilians on 138 separate occasions, but only 8 of the 138 were criminal.

The remaining ones were "were more like cases of negligence than of liability or war crimes," according to a commission member quoted by the NY Times.

Families of alleged victims, who have been demanding money as compensation, are accusing the commission of a political coverup.

Officials commemorate the 1995 massacre at Srebrenica

More than 7000 Muslim men and boys from the town of Srebrenica were killed by advancing Bosnian Serb troops in July, 1995, in what is considered the worst atrocity in Europe since World War II. (See the 2008 report, "Accused Bosnian war criminal Radovan Karadzic captured.")

Hundreds of victims of the massacre, previously left in mass graves, will be re-buried on Sunday in a mass funeral, in a ceremony to mark the 15th anniversary of the atrocity, according to the BBC.

For many years, Serbs denied that any massacre had occurred, but in March, Serbia's parliament passed a landmark resolution apologizing for the massacre, saying Belgrade should have done more to prevent the tragedy.

However, many people blame the United Nations for failing to stop the massacre, according to the Associated Press. A huge Srebrenica massacre memorial will be unveiled next year. The "Pillar of Shame" monument, by German activist Phillip Ruch, will be a huge jumble of more than 16,000 worn shoes, each pair representing a victim.

When the monument is seen from afar, the jumble of shoes will spell out "U.N" in gigantic letters. According to Ruch, it will serve as a "warning for all future U.N. employees never again just to stand by when genocide unfolds."

(Comments: For reader comments, questions and discussion, see the 11-Jul-10 News -- Sri Lanka's bitter disagreement with the United Nations thread of the Generational Dynamics forum. Comments may be posted anonymously.) (11-Jul-2010) Permanent Link
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10-Jul-10 News -- Pakistan shocked again by terrorist attack

The 'Ghazi Force' is thought responsible for earlier Lahore bombing.

Terrorist attack near Peshawar in Pakistan kills 65

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

At least 65 people were killed and over 100 others injured when two explosions ripped through a crowded bazaar in Pakistan's FATA (Federally Administered Tribal Area) near Peshawar on Friday.

Tehrik-e-Taliban (TTP), the Pakistan Taliban group, has claimed responsibility for the attack, according to Pakistan's Daily Times.

This region had been the scene of fighting between the Taliban and the army last year, and the army had declared the region safe again. Friday's attack gives the Pakistan people more reason to believe that there's no safe place in Pakistan.

'Ghazi Force' blamed for July 1 Sufi Shrine attack in Lahore

It was nine days ago that a packed Sufi shrine in Lahore was attacked by suicide bombers, killing dozens. (See "2-Jul-10 News -- New terrorist attack in Lahore, Pakistan" and "3-Jul-10 News -- Lahore bombing leaves Pakistanis confused.")

Tehrik-e-Taliban (TTP), the Pakistan Taliban group, had disavowed any responsibility for this attack, and there was some amount of confusion over who was responsible.

The focus is now being turned on the terrorist group "Ghazi Force," a relatively new militant group.

The Ghazi Force is made up of surviving ex-students and teachers of the madrasas attached to the Lal Masjid (Red Mosque) in Islamabad which was raided by the army in July 2007, according to Eurasia Review.

I wrote a lengthy description of the Red Mosque attack shortly after it occurred in 2007. (See "Pakistan: Over 106 dead in spectacular assault on radical mosque in Islamabad.")

The Red Mosque attack was a major shock to Pakistan. For most Pakistanis, it signaled the weakening of President Pervez Musharraf, and the beginning of the end of his tenure.

But even more important was that it was a major shock to Islamist militants, including the Taliban and al-Qaeda, who began considering the government to be a clear enemy of their radical Islamist movements, according to a lengthy report by MEMRI.

In particular, the leading cleric for the Red Mosque was Ghazi Abdul Rashid who called for his own death to spark an Islamic revolution. He said that he would rather be martyred than give in to the government, and he was killed during the army action against the Red Mosque.

The death of Ghazi Abdul Rashid led to the creation of the "Ghazi Force" terrorist group.

Additional links

Turkey is another country facing growing terrorism, in this case from PKK Kurd terrorists. Prime Minister Recep Tayyip Erdogan's actions in threatening Israel after the flotilla incident were very popular, but he's losing in the polls because of PKK terrorism. Bloomberg

Yemen's war against al-Qaeda on the Arabian Peninsula (AQAP) is heating up again. Time

What should you wear to work? Perhaps a pair of long navy blue shorts with a light purple silk blouse? Or maybe a colorful dropped-waist dress? There are web sites that will give you personal advice. NY Times

(Comments: For reader comments, questions and discussion, see the 10-Jul-10 News -- Pakistan shocked again by terrorist attack thread of the Generational Dynamics forum. Comments may be posted anonymously.) (10-Jul-2010) Permanent Link
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9-Jul-10 News -- Banks use 'Extend and Pretend' with commercial property

US Navy deploys submarine super-weapon near Chinese waters

How banks have used 'extend and pretend' to avoid a commercial real estate collapse

Top: Commercial RE sales, 2001-2009.  Middle: Maturity dates, 2000-2020.  Bottom: Percentage of loans 30 days or more past due. <font size=-2>(Source: Business Insider, WSJ)</font>
Top: Commercial RE sales, 2001-2009. Middle: Maturity dates, 2000-2020. Bottom: Percentage of loans 30 days or more past due. (Source: Business Insider, WSJ)

One of the mysteries of the last few years is the question of why the commercial real estate market hasn't collapsed the way the residential real estate market has.

The answer to the mystery is an industry phrase, "extend and pretend." Instead of foreclosing on delinquent properties, banks are simply extending or modifying maturing loans, hoping that the borrower will eventually be able to repay the modified loan. As regular readers of this web site are aware, what they're hoping for is that the massive real estate and credit bubbles of a few years ago can be reflated, which is impossible.

The three graphs to the right show what's really going on.

The top graph shows the bubble in commercial real estate transaction, which peaked in October 2007, and has been crashing ever since. It's almost incredible that any competent individual could possibly believe that this bubble could be reflated.

During the bubble years, underwriting standards were thrown out the window, according to Business Insider. Nearly 90% of the loans were either interest-only or partial interest (negative amortization), with small down payments. The assumption was the same as in all bubbles -- that it would keep growing forever, and all loans would be easily repaid.

The second graph shows that the end is nowhere in sight. The commercial loans made during the bubble are still maturing, and maturities won't even peak until 2013.

The third graph shows that the delinquency rate has been surging since the bubble burst. In the first quarter of 2010, 9.1% of commercial property loans held by banks were delinquent, compared with 1.5% in the first quarter of 2007, according to the WSJ (Access).

About 2/3 of bank commercial real estate loans maturing between now and 2014 are underwater (worth less than the amount of mortgage loan). Values have fallen so fast that US commercial real estate values are 42% below their October 2007 peak.

The situation with commercial real estate is parallel to residential real estate in the following way: Banks and lenders are using accounting tricks to maintain the real estate bubble as long as possible and keep bubble assets on their balance sheets. In "normal" times, these tricks would be considered illegal, but not today. (See "'Shadow inventory' of unsold homes continues to grow.")

History tells us that these tricks will only work for so long. All it will take is the right trigger, and all these commercial and residential properties will start to come onto the market in a panic. From the point of view of Generational Dynamics, that's exactly what must happen.

Additional links

The US Navy has been sending China a message by deploying near Chinese waters a submarine super-weapon armed with 154 Tomahawk cruise missiles. Time

The compliant labor force of China in the 1990s is disappearing, as the younger generation begins to show its teeth. FT (Access)

China and the United States agreed on a watered-down draft statement that doesn't directly blame North Korea for the attack on the South Korean warship Cheonan. The UN Security council will vote on the watered down statement on Friday. Washington Post

The bitter and growing dispute between Sri Lanka and the United Nations, triggered by Ban Ki-Moon's decision to appoint an international panel to determine if Sri Lanka committed war crimes during the civil war, reached a turning point on Thursday as the U.N. recalled its Sri Lanka envoy and closed the U.N. office in Colombo, the capital of Sri Lanka. VOA

Why men are attracted to women with small feet. New Scientist (Insert your favorite Fats Waller story here.)

The price for brides in Ingushetia has more than tripled. The minimum price for a bride has gone from $400 to $1,300. Moscow Times. I assume that this could only be happening if there's a shortage of young women or too many young men.

(Comments: For reader comments, questions and discussion, see the 9-Jul-10 News -- Banks use 'Extend and Pretend' with commercial property thread of the Generational Dynamics forum. Comments may be posted anonymously.) (9-Jul-2010) Permanent Link
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8-Jul-10 News -- Thailand chooses the path to civil war

United Arab Emirates ambassador advocates military strike on Iran

Thailand heads down the road to civil war

Thailand's government is extending its state of emergency for three more months, according to VOA. It was first imposed as government forces routed the "Red Shirt" protests that shut down Bangkok's business district in April and May. (See "24-May-10 News -- Les Misérables of Thailand at a turning point.")

According to a government spokesman, "There are still attempts to cause certain trouble or activities including sabotage. There are attempts to use certain media to push people to confront one another. Also attempts to the society in terms of causing widespread violence in certain ways. That is why the usage of the emergency decree is still needed in certain areas."

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 state of emergency applies mainly to areas of the country where the indigenous laborers live, in addition to Bangkok. This situation has infuriated the laboring class, and portends a great deal of trouble in the future.

When a country goes through a generational Awakening era, there's always a "generation gap" and generational conflict between the survivors of the previous crisis war and their children. At some point, the Awakening era climaxes in some major political confrontation. There are only two possible winners of this conflict: The old folks or the kids. In most cases, the kids win because the old folks grow older and die. But if the old folks win, then it's very bad news for the country.

For example, when America went through its Awakening era in the 1960s and 1970s, the kids won when the era climaxed with President Nixon's resignation. China's Awakening era climaxed with the 1989 Tiananmen Square massacre, where the old folks won, leading to a paranoid Beijing government that fears a civil war at any time.

When the old folks win, the "horizontal" generational conflict morphs into a "vertical" fault line conflict that pits two identity groups against one another, the élite market-dominant group versus the marginalized group. In China it's the China Communist Party élite versus the peasants, and in Thailand it's the Thai-Chinese élite versus the laborer class.

In situations like this, the Awakening era climax is followed by low-level violence that grows over a period of years, eventually leading to civil war in the next generational Crisis era. It now appears that, for Thailand, the die is cast.

Could Thailand have avoided this fate? Only if the red shirts had "won" the political confrontation, by forcing the resignation of the current government, resulting in new elections. However, the Thai-Chinese élite would never have tolerated that solution, since the new election would have brought the laborer class to power once again, as it had before with the election in 2001 of former Prime Minister Thaksin Shinawatra. But Thaksin and the people he represents are hated by the Thai-Chinese, and so the answer is "No, Thailand could not have avoided this fate."

UAE ambassador advocates military strike on Iran

Yousef al-Otaiba, the United Arab Emirates ambassador to the United States, advocated a military strike on Iran to stop its development of nuclear weapons, according to the Washington Times.

"I think it's a cost-benefit analysis. I think despite the large amount of trade we do with Iran, which is close to $12 billion … there will be consequences, there will be a backlash and there will be problems with people protesting and rioting and very unhappy that there is an outside force attacking a Muslim country; that is going to happen no matter what.

If you are asking me, 'Am I willing to live with that versus living with a nuclear Iran?,' my answer is still the same: 'We cannot live with a nuclear Iran.' I am willing to absorb what takes place at the expense of the security of the U.A.E."

Many officials from Arab states have expressed such sentiments in private, but al-Otaiba is the first high-level Arab official to make such a blunt statement publicly.

Wall Street soars on news of retail sales

Wall Street stocks soared 3% on Wednesday, on news that American consumers were spending money in shopping centers again.

The International Council of Shopping Centers announced that same store sales in June rose far more than expected, at the fastest rate in four years, according to Bloomberg.

Since 70% of US economy (GDP) is retail sales, this gave a shot of serotonin to investors, who pushed the stock market up over 3% on Wednesday.

However, Michael (Mish) Shedlock points to another story that also came out on Wednesday: US shopping mall vacancies increased in the second quarter by the greatest amount since 1991, according to Reuters.

According to Shedlock:

"Not only is it easy to beat record low comparisons of a year ago, same store sales are rising in part because stores are closing like mad.

Circuit City closed its entire chain in bankruptcy, thus some of those sales went to Best Buy, some other places, and some sales simply vanished.

More importantly, states have been reporting declining sales tax collections for the entire year.

Admittedly state tax collection numbers are frequently delayed by a couple months, but that still does not jive with overly bullish comments about sales over the first five months of the year from the International Council of Shopping Centers."

All of this indicates that Wednesday's rally will be short-lived, according to Shedlock.

From the point of view of Generational Dynamics, the situation hasn't changed. The stock market has been historically overpriced by substantial amounts since 1995, and by the Law of Mean Reversion, will have to fall sharply and stay down there for a comparable length of time (15 years). This is a mathematical certainty. (See "How to compute the 'real value' of the stock market.")

'ClimateGate' researchers exonerated of fraud

A comprehensive review of the hacked e-mail messages that led to the "ClimateGate" scandal and accusations of data manipulation by climate researchers has exonerated the researchers. Phil Jones, who had lost hs job as head of the Climatic Research Unit of University of East Anglia was reinstated, according to the Telegraph.

The researchers were criticized for failing to be open about their methodologies, and for some inconsequential examples of data manipulation, but the larger charges were found to be untrue.

I'll admit that I'm surprised by the exoneration, but it doesn't change my opinion of the climate change debate, because I wrote most of my criticisms before the hacked e-mail messages even came to light.

My criticism was never that it was a scientific fraud. My criticism was that it was a financial fraud. (See "Politicians are gloomy about reaching climate deal in Copenhagen.")

Even if you assume that everything that the science researchers say is true -- that the climate is warming and that human beings are at fault -- that still doesn't change the fact that the proposals to cure the problem will accomplish nothing, except to waste a lot of money on bankers and politicians.

In 2007, I wrote "UN Climate Change conference appears to be ending in farce," referring to a conference in Bali that attracted hundreds of climate change advocates who generated vast amounts of carbon emissions taking jet planes and sitting in air conditioned meeting rooms, when they weren't out on the beach.

In that report, I highlighted one Generation-X banker, Louis Redshaw, Head of Environment Markets, Barclays Capital, who was hoping to make millions of dollars. The scheme was to set up financial derivatives / structured securities based on carbon credits in the same way that other bankers had set up structured securities based on residential mortgages.

According to one banker that I quoted, "I think this is likely to get bigger than the interest-rate-swaps market within 10 to 15 years, particularly once America joins in."

So the bankers would make huge amounts of money defrauding investors, just as they had made huge amounts of money defrauding investors with mortgage-backed securities.

And with all that money floating in the pockets of politicians and bankers, there isn't a single credible proposal for actually reducing the climate change threat -- assuming that everything the climate change researchers say is true.

Additional links

Ban Ki-Moon burns in effigy in Sri Lanka <font size=-2>(Source: BBC)</font>
Ban Ki-Moon burns in effigy in Sri Lanka (Source: BBC)

An acrimonious feud is growing between Sri Lanka and the United Nations, after UN Secretary-General Ban Ki-Moon appointed an international panel to investigate war crimes during the recent civil war. In the picture above Ban Ki-Moon burns in effigy. BBC

A suicide bomber, assumed to be from al-Qaeda in Iraq, targeted a crowd of Shia pilgrims near Baghdad, killing 35 and wounding over 100. BBC

Israeli defense officials are now concerned that sophisticated military technology that Israel sold to Turkey in the past will now make its way into the hands of Syria and Iran. Media Line

Egyptian President Hosni Mubarak is believed to have cancer of the esophagus. Debka

France's president Nicolas Sarkozy is involved in a major financial scandal, accused of receiving illegal political contributions from Liliane Bettencourt, who owns the L'Oreal cosmetics firm. Washington Post

For the first time since 1993, the Indian army was on the streets of Kashmir as a show of force to help the local police quell the violence of the last four weeks. The Hindu

Pakistan's President Asif Ali Zardari meet on Wednesday with leaders of a dozen Chinese corporations specializing in the defence, petroleum, banking, industrial and construction sectors, to encourage Chinese investments in Pakistan. Daily Times

Send an e-mail message to your future self. Future Me

(Comments: For reader comments, questions and discussion, see the 8-Jul-10 News -- Thailand chooses the path to civil war thread of the Generational Dynamics forum. Comments may be posted anonymously.) (8-Jul-2010) Permanent Link
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7-Jul-10 News -- Rogoff: China's property market near 'collapse'

Why is the Gulf cleanup taking so long?

Kenneth Rogoff: China property market is beginning to collapse

Harvard University professor and former IMF chief economist Kenneth Rogoff has told Bloomberg news that China's property market is beginning a "collapse" that will hit the nation's banking system.

His statement comes as global investment banking firm Standard Chartered Plc forecasts a drop in real estate prices as much as 30% in big cities, by the end of the year. According to the article, several economists have lowered their gross domestic product forecasts for China.

This news comes as the Shanghai composite index fell 6.7% last week, to the lowest close since March of last year, according to Bloomberg.

These are just more examples of the apparent worldwide decline in economies around the world that we've been reporting on. The decline began in May, as we wrote in "7-Jun-10 News -- Globally, May was a month of ominous events," and one economic indicator after another has been going downward. We appear to be headed once again to a worldwide freeze in trade and transportation, just as happened at the end of 2008.

Incidentally, the NY Times had a lengthy piece on Kenneth Rogoff and his collaborator, Carmen M. Reinhart. The two of them have studied and catalogued economic crises and collapse for the last 800 years.

More evidence of the worldwide slowdown is that manufacturing slowed around the world in June, according to the Wall Street Journal, which published this graphic:

Global manufacturing slowdown in June <font face=Arial size=-2>(Source: WSJ)</font>
Global manufacturing slowdown in June (Source: WSJ)

Ambrose Evans-Pritchard, writing in the Telegraph, says that, "With the US trapped in depression, this really is starting to feel like 1932." In the article, he quotes on statistic after another to show that we're headed in the wrong depression.

From the point of view of Generational Dynamics, the financial crisis has barely begun, here or in China. Analysts are hoping that a 30% plunge in real estate prices in China will have little effect on the economy, but they always say things like that. A 30% plunge is enormous, and will have an extremely deflationary effect on China and, in fact, the world.

As I've said many times, from the point of view of Generational Dynamics, the situation hasn't changed. The stock market has been historically overpriced by substantial amounts since 1995, and by the Law of Mean Reversion, will have to fall sharply and stay down there for a comparable length of time (15 years). This is a mathematical certainty. (See "How to compute the 'real value' of the stock market.")

Why is the Gulf cleanup taking so long?

I'm very puzzled by this. President Obama's opposition have been accusing him of putting politics ahead of the cleanup. In particular, I keep hearing them say that George Bush waived the Jones Act after Katrina, while Obama still haven't waived the Jones Act. Waiving the Jones act would allow many skimmers from foreign countries to remove the oil before it reaches shore. I hear that Obama is refusing to waive it because of opposition by labor unions. I'm still waiting to hear a satisfactory explanation from the White House.

One thing is for sure: If the Republicans win back either the Senate or the House in the fall, then expect lengthy hearings next year, grilling Obama Administration officials for being incompetent.

One foreign skimmer is being tested right now. A massive Korean super-tanker has been modified to skim oil from the surface in the Gulf. Once deployed, the ship would suck up more than 20 million gallons of oil perday.

Here's an interesting Associated Press video describing the super-tanker, which has been named "A Whale":

Additional links

South Korea and the U.S. are planning massive joint military exercises in the West Sea of Korea, once the U.N. Security council comes to a decision in response to North Korea's sinking of the South Korean Navy warship Cheonan. The Chinese and the North Koreans are objecting. Chosun

The Dalai Lama celebrated his 75'th birthday on Tuesday, but the Chinese claim that they aren't keeping track of it. Reuters

Kashmir violence is escalating, as police opened fire on demonstrators in different parts of Srinagar, the heart of Indian-controlled Kashmir. Four civilians were killed, and 70 others injured. India is considering deploying the army. The Hindu

Queen Elizabeth, the world's longest reigning monarch, addressed the United Nations General Assembly on Tuesday, for the first time since 1957. "I have . . . witnessed great change, much of it for the better, particularly in science and technology, and in social attitudes," she said. "Remarkably, many of these sweeping advances have come about not because of governments, committee resolutions, or central directives -- although all these have played a part -- but instead because millions of people around the world have wanted them. For the United Nations, these subtle yet significant changes in people's approach to leadership and power might have foreshadowed failure and demise." Sounds like she's familiar with Generational Dynamics. Washington Post

Computer software has deciphered the ancient language of Ugaritic. The technology might be used to improve translation of modern languages. MIT

Are your appliances spying on you? Ordinary household appliances, from the microwave oven to the television set, are sometimes "smart" appliances that can send information about you to central databases. The House is working on legislation that would protect the privacy of appliance owners. Fierce Government IT

(Comments: For reader comments, questions and discussion, see the 7-Jul-10 News -- Rogoff: China's property market near 'collapse' thread of the Generational Dynamics forum. Comments may be posted anonymously.) (7-Jul-2010) Permanent Link
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6-Jul-10 News -- Turkey-Israeli relations continue to deteriorate

Iran complains that some airports are refusing to refuel Iran's planes

Turkey/Israeli disagreement appears to be permanent

Last week when it leaked out that officials from Turkey and Israel had had a "secret" meeting in Zurich, the immediate worldwide reaction was that they would patch up their silly little quarrel, and then everything would get back to "normal."

Israel vs Turkey <font size=-2>(Source: Time)</font>
Israel vs Turkey (Source: Time)

However, the news of the last couple of days appears to make that increasingly unlikely. The leak of the "secret" meeting is said to have infuriated the Turks, according to Hurriyet, on top of their existing anger over the deaths of nine Turkish citizens on the "freedom flotilla" confrontation near Gaza in may.

On Monday, Turkey threatened to completely cut diplomatic ties with Israel, unless Israel either apologizes for the deaths, or else agrees to accept the conclusions of an international investigation, according to the Guardian. This is the harshest threat by Turkey so far.

Israel's foreign minister Avigdor Lieberman responded by saying that "Israel has no intention of apologizing to Turkey," according to Israel's Foreign Ministry. He said that there has been a "dramatic change" in Turkish policy, because of domestic policy, and that Turkey's recent policy decisions have been "mistaken."

However, Turkey's Prime Minister Recep Tayyip Erdogan is being widely applauded in the Arab world for his tough stance toward Israel. An editorial in the Arab News expresses this view as follows:

"If Turkey contemplates such an extremely serious step it only demonstrates the Turkish government’s continuing anger at the slaughter of its nationals and Israel’s failure to address the issue properly. Ankara’s fury was no doubt stoked by the Israeli leak that Foreign Minister Ahmet Davutoglu had secretly met with an Israeli Cabinet minister in Zurich. Turkey was clearly trying to persuade their erstwhile allies to adopt a more moderate and cooperative attitude in the face of world outrage at the commando attack on the Gaza-bound aid convoy.

It may have dawned on the Turks that quiet diplomacy simply does not work with Israelis, especially when they have an administration hell-bent on avoiding any sort of concession to anyone. Coming on the eve of this week’s meeting between the Israeli premier and President Barack Obama, the Turkish ultimatum is likely to add to the pressure on Netanyahu. The more radical members of his right-wing coalition government may be realizing that Israel is increasingly driving itself into isolation. If the Turkish demands are not met, it will lose one of its two allies in the Middle East and the situation may lead to the breaking of diplomatic links."

The significance of this opinion is that even if Erdogan were inclined to back down from some of his demands of Israel, to do so would risk generating an enormous backlash against Turkey from the Arab world.

In fact, neither the Turks nor the Israelis are able to back down without risking a backlash from their hardline supporters. So unless some magic formula is found for something that they can both agree to, the tension between Turkey and Israel is only going to get worse.

However, while Turkey is getting closer to the Arabs, Israel's traditional enemy, Israel is getting closer to Greece, Turkey's traditional enemy, according to Debka:

"Meanwhile, as Western and Turkish media outlets harped on Israel's loss of its only Muslim ally in the Middle East, Jerusalem was busy acquiring a new strategic partner: Greece, a NATO member like Turkey with plenty of Middle East interests, has shown interest in stepping into Turkey's shoes and investing in stronger military and intelligence ties.

DEBKA-Net-Weekly 450 reported on June 25 from sources in Athens and Jerusalem that this development was not so much planned in Jerusalem as initiated by Greek Prime Minister George Papandreou, who boasts many Jewish and Israeli friends and business contacts, some of whom hold high political and intelligence positions in Israel. He saw Athens' chance to slot into Ankara's place in Jerusalem and transform their present diplomatic, economic, military and intelligence ties into a thriving strategic alliance, that would carry the same advantages to both sides as did Israel's former relations with Turkey.

According to some sources, Papandreou also hopes this alliance will help ease some of his country's financial woes. But most of all, he is looking to Israel for help in speeding the upgrade of his armed forces and helping transform them into the Christian mainstay of NATO in the Balkans and southern Europe - in place of the Muslim Turkish army."

If the Debka report turns out to be true as stated, then we are in the middle of a major political transformation in the Mideast.

New sanctions are denying fuel for Iran's planes

Part of the politics of the Turkish-Israeli disagreement is that Turkey is also siding with Iran on the question of sanctions. Thus, Turkey's sanctions against Israel may be considered revenge for the West's sanctons against Iran.

On Thursday of last week, the Obama administration imposed far-reaching sanctions designed to deny fuel imports to Iran, according to Reuters. Iran has a great deal of oil, but little refining capacity, and so must import its gasoline and other fuels. The new sanctions restrict these imports.

The result, according to an Iranian airline official, is that: "Since last week, our planes have been refused fuel at airports in Britain, Germany and UAE because of the sanctions imposed by America." So far national carrier Iran Air and Mahan Airlines had been affected.

According to the article, it's not countries that are imposing the ban, but private firms that fear violating the sanctions.

Additional links

It's the first anniversary of China's worst ethnic violence in years, the rioting by ethnic Uighurs in Xinjiang province, but problems of discrimination still remain. Time

Widespread protests in India, far exceeding expectations, shut down much of the country on Monday. People were protesting the 30 cent per gallon rise in fuel prices, after the government decided last week to stop subsidizing fuel. NY Times

It takes longer to read a book on a Kindle or an iPad than an actual book. CNN

(Comments: For reader comments, questions and discussion, see the 6-Jul-10 News -- Turkey-Israeli relations continue to deteriorate thread of the Generational Dynamics forum. Comments may be posted anonymously.) (6-Jul-2010) Permanent Link
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5-Jul-10 News -- Kyrgyzstan is supposedly 'back to normal'

Michael Steele versus the Democratic National Committee

Kyrgyzstan is supposedly 'back to normal' after referendum

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

Roza Otunbayeva was inaugurated as president of Kyrgyzstan on Saturday, becoming the first female head of state in central Asia, according to CNN. The inauguration was made possible after last Sunday's successful national referendum approving the new constitution.

Otunbayeva gained power through a coup in April, overthrowing the former president, Kurmanbek Bakiyev, who is now in self-imposed exile in Belarus.

The coup triggered horrendous ethnic violence between Uzbeks and Kyrgyz in the Fergana Valley region that we reported on for several weeks, resulting in thousands of deaths and hundreds of thousands of refugees. The overwhelming majority of victims were from the Uzbek minority.

However, Kyrgyzstan is now completely "back to normal," according to Russian commentary appearing in Voice of Russia. The referendum passed, despite bloody clashes designed to disrupt it, according to the commentary. And the government of Roza Otunbaeva is set to reinstate law and order.

The problem is that Kyrgyzstan is fundamentally changed. There has been no generally accepted explanation for what started the violence, and each side is putting forth conspiracy theories. Nationalism is rising, according to RFERL. Hundreds of thousands of Uzbek refugees are returning to their homes, only to find that they've been destroyed by the Kyrgyz.

An analysis in Economy Watch points out that there's evidence that Kyrgyz police and military personnel were among those that attacked the Uzbeks.

This can only lead to further ethnic violence, according to Russian president Dmitri A. Medvedev, who says that the country is facing "degradation and, unfortunately and very likely, disintegration." He added that "Then we will be forced to tackle the same problems that are being tackled in other regions, for instance in Afghanistan."

So Kyrgyzstan may be "back to normal" for a while, but the explosive desire for revenge may engulf not only Kyrgyzstan but all of central Asia.

Kanat Saudabayev, the foreign minister of Kazakhstan, writes in the NY Times, asking a question:

"Some people may ask: Why does the situation in Kyrgyzstan matter? For many of them it is probably, as Neville Chamberlain said famously of Czechoslovakia, a quarrel in a faraway country between people of whom we know nothing. In fact, Kyrgyzstan is one of the main conduits for opium and heroin smuggling from Afghanistan to Russia and Europe.

If lawlessness and loss of authority are allowed to take root in Kyrgyzstan there is a danger that the country may be subject to infiltration by extremist groups, including terrorists.

The consequences of a complete breakdown of Kyrgyzstan could be very serious for Central Asia and the region beyond. The prospect of further violence, refugee flows to neighboring countries and a complete loss of control throughout the nation should be sufficient to galvanize world leaders to address the problems."

Actually, though, one thing that's become clear in the last few weeks is that world leaders -- at least in the U.S., Russia, the EU and China -- have no desire to get involved in yet one more civil war.

Michael Steele versus the DNC

This has to be one of the most pathethic exhibitions of blithering ignorance around, even by the pathetically low Washington standards.

First, here's what Republican National Committee chairman Michael Steele said last week, according to the Washington Post:

"Keep in mind again, federal candidates, this was a war of Obama's choosing. This is not something the United States had actively prosecuted or wanted to engage in. ...

It was the president who was trying to be cute by half by flipping a script demonizing Iraq, while saying the battle really should be in Afghanistan. Well, if he's such a student of history, has he not understood that you know that's the one thing you don't do, is engage in a land war in Afghanistan? All right, because everyone who has tried, over a thousand years of history, has failed. And there are reasons for that. There are other ways to engage in Afghanistan."

This is a guy who apparently doesn't even remember 9/11. Republicans have been contemptuous of this remark, and Steele has apparently described it as some sort of slip of the tongue.

I actually don't believe the excuse. I think that he really believes that President Obama began the Afghanistan war. However, this would make him no more ignorant than the average politician in Washington.

Long-time readers of this web site will remember that I've been very critical of journalists, analysts and politicians because of their sheer stupidity and ignorance. This was shown by articles in the 2007 Congressional Quarterly. Washington journalists, analysts and politicians had no idea what's going on in Iraq, even though they constantly pretended to be "experts." They didn't know the differences between Sunni and Shia, they didn't know that al-Qaeda is a Sunni organization, and they didn't know that al-Qaeda was operating in Iraq.

These were all elementary facts to anyone who sets Iraq policy, and yet the Congressional Quarterly article showed that even long-time "experts" on Iraq didn't know these basic facts.

So Michael Steele thinks that Obama started the Afghanistan war? Surprise, surprise! He's just a typical Washington politician.

But the story doesn't stop there. The Democratic National Committee issued this statement, according to the Washington Post:

"Here goes Michael Steele setting policy for the GOP again. The likes of John McCain and Lindsey Graham will be interested to hear that the Republican Party position is that we should walk away from the fight against Al Qaeda and the Taliban without finishing the job. They'd also be interested to hear that the Chairman of the Republican Party thinks we have no business in Afghanistan notwithstanding the fact that we are there because we were attacked by terrorists on 9-11.

"And, the American people will be interested to hear that the leader of the Republican Party thinks recent events related to the war are 'comical' and that he is betting against our troops and rooting for failure in Afghanistan. It's simply unconscionable that Michael Steele would undermine the morale of our troops when what they need is our support and encouragement. Michael Steele would do well to remember that we are not in Afghanistan by our own choosing, that we were attacked and that his words have consequences."

This retort is even dumber than Steele's remark. The DNC people are forgetting that they fought bitterly to cut off funding for the Iraq war in 2007, and particularly were opposed to the "surge," claiming that it would embroil America in a massive civil war.

I wrote at the time that loony left organizations, including the NY Times and NBC News, were doing everything in their power to see that America was defeated and humiliated in Iraq. I said that they were, in effect, siding with the terrorists against America, and that their actions were close to treason.

So imagine my surprise at seeing the DNC accuse Steele of exactly the same thing, conveniently forgetting their own actions in 2007.

The ignorance and stupidity of journalists and politicians at that time were almost beyond belief. I wrote about what was really going on in Iraq in my April, 2007, article, "Iraqi Sunnis are turning against al-Qaeda in Iraq," which I still believe was the best analytical article about the war in Iraq written anywhere at that time.

There's an interesting political shift going on today. Increasingly, it's the Republicans that are supporting President Obama's plan for the Afghanistan war, and it's the Democrats who oppose it, and are demanding withdrawal.

During the 2008 election campaign, Obama frequently said that it was important for the U.S. to win in Afghanistan, and in 2009, Obama escalated the war by greatly increasing the troop strength. I'm still waiting for the loony left to start calling Obama a "Hitler" and a "genocidal killer" and a "war criminal," as they used to call Bush (and still do).

Stars and Stripes Forever

On Sunday, the Boston Pops Orchestra, conducted by Keith Lockhart, gave its 125'th performance of the Independence Day celebration on Boston's esplanade.

In case you missed it, here's a video of John Williams, a former Boston Pops conductor, and a performance of Stars and Stripes Forever in Tokyo in June, 1990 -- probably just before the orchestra headed back home for the 1990 Independence Day celebration in Boston:

What's really mind-blowing about this performance is how John Williams conducts not only the orchestra, but also the entire audience.

Additional links

Turkey is threatening Israel with further harsh sanctions, unless Israel either apologizes for the deaths of Turkish citizens on the "freedom flotilla" confrontation, or else accepts the findings of an international inquiry into the incident. Israel is unlikely to do either. Hurriyet

Queen Elizabeth will visit New York City on Tuesday. NY Times

The London Housewives' Association held a special ceremony on July 4, 1954, to celebrate the end of World War II food rationing in Britain. BBC

Chinese Premier Wen Jiabao is warning that China's economy is facing difficulties. "The severity of the international financial crisis and the difficulties of economic recovery have surpassed people's expectations, so the dilemmas of macroeconomic control have increased. So we will not only take great efforts to solve some long-running structural problems but also we need to solve some existing and urgent problems." Reuters

Hillary Clinton, visiting Yerevan, Armenia, seeks to broker the long-running dispute with Azerbeijan over the territory of Nagorno-Karabakh. Associated Press

Mirroring moves already taken in Belgium and Spain, lawmakers in France begin debate this week on a bill aimed at banning the burqa, which President Nicolas Sarkozy has described as degrading to women. AFP

Sears, Kmart and Toys 'r' Us are dusting off a Great Depression era tactic, by re-launching the "layaway plan" for the Christmas holidays. A customer can pay a weekly amount to the retailer, and then use it to purchase gifts when the holidays arrive. The retailer will even add a bonus to the saved amount. CNBC

The iPhone applications "Fast Facts, Challenges & Tactics" will help Christians reason argue with non-believers, while the "Atheist Pocket Debater" will provide verbal ammunition for the other side. Or, there's "One-Minute Answers to Skeptics," and "Answers for Catholics." NY Times

(Comments: For reader comments, questions and discussion, see the 5-Jul-10 News -- Kyrgyzstan is supposedly 'back to normal' thread of the Generational Dynamics forum. Comments may be posted anonymously.) (5-Jul-2010) Permanent Link
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4-Jul-10 News -- From which country did the U.S. win independence?

United Nations warns of increased tension between Hizbollah and Israel

From which country did the U.S. declare its independence in 1776?

Was it France, China, Japan, Mexico or Spain? These are some of the answers give by Americans to the question, "On July 4th we celebrate Independence Day. From which country did the United States win its independence?" when asked by a Marist College poll.

Only 74% knew that the answer was Britain.

Here's the demographic breakdown of the percentage getting it right:

    USA Residents                   74%
    Region  Northeast               84%
            Midwest                 74%
            South                   68%
            West                    75%
    Household Income
            Less than $50,000       63%
            $50,000 or more         86%
    Race    White                   82%
            Non-white               56%
    Age     18 to 29                60%
            30 to 44                75%
            45 to 59                79%
            60 or older             76%
    Age     Under 45                67%
            45 or older             78%
    Gender  Men                     81%
            Women                   67%

Quite honestly, I would have thought that everyone over 50 would have known the answer, but I guess not.

UN warns of renewed war between Israel and Hizbollah

French soldiers in the UN peacekeeping force in southern Lebanon were attacked last week with sticks, rocks and eggs, causing several injuries, in the latest of a string of such incidents, according to AFP.

The peacekeeping force is known as UNIFIL, which stands for United Nations Interim Force in Lebanon. UNIFIL was established in 1978 to keep Israel and Hizbollah apart, and its mandate was increased in 2006 after the summer war between Israel and Hizbollah. The mission of UNIFIL is to keep the two sides apart, and prevent another war.

This occurs just as the U.N. issued a report on Friday. AFP quotes the report as saying that tensions have risen considerably since April, when Israel accused Syria of supplying Scud missiles to Hizbollah, in violation of UN Security Council resolutions, and warns that a new war might start at any time.

The U.N. report agrees that Hizbollah's existing weapons are a clear violation, but added that it had no evidence that Syria supplied them.

According to the Jerusalem Post, the report blames both Hizbollah and Israel for violations. It said that Israel continues to violate the cease-fire by conducting daily overflights of Lebanon and refuses to withdraw from the disputed northern border village of Ghajar.

From the point of view of Generational Dynamics, there's no clear trend indicating whether or not a new Israeli-Hizbollah war is imminent.

Hizbollah and Lebanon are in a generational Awakening era, and Hizbollah fought the 2006 war in a "cool" fashion, with Hizbollah soldiers shooting missiles into Israeli territories, and returning home to their wives and families at the end of the day.

By contrast, Israel is in a generational Crisis era, and fought the 2006 war in a "hot" fashion, starting the war abruptly with no plans and no objectives. (See "How Israel panicked in pursuing the summer Lebanon war with Hizbollah.")

Additional links

The state of California is disastrously in budget trouble, but it turns out that there's another state that's even worse off: Illinois. The state is refusing to pay some of its bills, and has the most underfunded pension system in the nation. Businesses are closing because the state won't pay the money it owes them, and local governments have laid off 20,000 workers. NY Times

The war between the Turks and the PKK Kurds in Iraq is reigniting. BBC

China has invested tens of billions of dollars in Pakistan, mostly for energy projects that will allow China to import more oil from the Mideast. China's role as Pakistan's chief patron is consistent with the Generational Dynamics view that China and Pakistan will opposed the U.S. and India in the coming Clash of Civilizations world war. CS Monitor

Many ethnic Turks living in Germany are moving back to Turkey because it's more familiar and because they can often earn more money. Spiegel

Mexico goes to the polls on Sunday for an election heavily influenced by the increasing drug cartel violence across the country. Bloomberg

(Comments: For reader comments, questions and discussion, see the 4-Jul-10 News -- From which country did the U.S. win independence? thread of the Generational Dynamics forum. Comments may be posted anonymously.) (4-Jul-2010) Permanent Link
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3-Jul-10 News -- Lahore bombing leaves Pakistanis confused

Orders to US factories declined in May more than forecast

Lahore bombing raises Pakistani concerns about increasing terrorist trend

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

Reading the news reports from Pakistan about the Thursday night bombing of the Sufi shrine in Lahore, I get no coherent message except utter confusion.

Nobody has claimed responsibility for the terrorist attacks. It was thought that perhaps Taliban militants (i.e., Pashtun Sunni Islamist terrorists from Pakistan's northwest) were responsible for the attacks. But AFP quotes Taliban leaders as denying any involvement.

A spokesman for Tehrik-i-Taliban (TTP) says, "We are not responsible for these attacks. This is a conspiracy by foreign secret agencies. You know we do not attack public places. We condemn this brutal act. Our target is very clear and we only attack police, army and other security personnel." Well, that's nice to know.

Eliminating TTP leaves the Sunni Islamist groups in Punjab province itself. Many of these groups were trained by Pakistan's intelligence service (ISI) in the 1980s to fight Indians in the disputed Kashmir region, but now they've turned against Pakistan itself.

The most dangerous terrorist group in Pakistan right now is Lashkar-e-Jhangvi (LJ).

According to a BBC analysis, it's thought that LJ is responsible for this latest attack in Lahore, as well as a number of previous terrorist attacks.

The Pakistani people don't know what to believe, except that the terrorist bombings seem to be out of control. The police and security forces had promised to bring the attacks under control, and indeed, June was the first month in 18 months or so that had been free of terrorist attacks. Thus, this new attack makes it clear that the police have not yet succeeded.

Many Pakistanis blame the terrorist attacks on the United States, according to Associated Press. According to this reasoning, the terrorist group decided to blow up a Sufi shrine in Lahore because Americans were fighting a war in Afghanistan. I guess this kind of belief is no different from a Wall Street investor who believes that a price/earnings ratio of 20 means that stocks are underpriced. There's just no limit to the insane beliefs of people when they become sufficiently desperate.

The LJ group has a long history of terrorist acts against religious minorities, according to the BBC analysis. In the 1990s they mostly targeted Shia groups, but lately they've gone after even Sunni groups that didn't accept their particular forms of militant doctrine.

However, a generational change occurred after 9/11, when American air strikes destroyed most of the older leadership, allowing a younger and more dangerous generation of militants to take charge. Today they target both Shia and Sunni groups across Punjab province, and in Karachi. Their objective is to "purify" 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). An increase in the level of terrorist violence in both India and Pakistan appears to be part of that scenario.

Additional links

More evidence that May was an extremely ominous month: Orders to U.S. factories declined in May more than forecast. Bloomberg

American forces are building around the Persian Gulf and in Azerbaijan, while the Saudis are cooperating with the Israelis militarily, as tensions grow over a possible military strike on Iran. Asia Times

A columnist in Egypt notes that prices of fruits, meats and vegetables are substantially lower in Gaza than they are in Cairo, despite the Israeli blockage and siege of Gaza. He asks, "What siege are they talking about? The Egyptian people should pray to Allah to smite them with such a siege!" Memri

China is planning a 24 hour/day international news channel in English, and will have an office in Times Square. NY Times

Violence continued in Kashmir on Friday as police imposed a curfew. At least 60 people were injured in clashes as people tried to defy the curfew at several places. The Hindu

California governor Arnold Schwarzenegger has ordered that all state employees have their salaries cut to minimum wage of $7.25 per hour, in order to reduce the state's enormous $19.1 billion budget deficit. State Controller John Chiang has refused to comply, but on Friday a state appelate court ordered him to do so. Mercury News

(Comments: For reader comments, questions and discussion, see the 3-Jul-10 News -- Lahore bombing leaves Pakistanis confused thread of the Generational Dynamics forum. Comments may be posted anonymously.) (3-Jul-2010) Permanent Link
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2-Jul-10 News -- New terrorist attack in Lahore, Pakistan

Deflationary spiral spreads across Asia

Terrorist attack kills 40 in Sufi shrine in Lahore, Pakistan

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

On Thursday night, the Sufi shrine in Lahore is always packed with worshippers. That was the moment that three successive suicide attacks killed 40 people, according to Dawn.

It's a familiar story. On May 29, terrorists killed 80 people at an Ahmadi shrine in Lahore. Ahmadiyya is a small Shia Muslim sect that's censured by Sunni Muslim extremists. (See "29-May-10 News -- Terrorist attacks create carnage in Pakistan and India.")

Sufism is an offshoot of Sunni Islam, but it's considered by extremists to be an apostasy.

Pakistan's Daily Times reports that the attack was following by massive protests and violence by people protesting the lack of security in Lahore.

This attack comes a few days after Pakistani security agencies seized 20,000 kg of explosives in Lahore, as well as anti-aircraft guns, rocket-propelled grenades, small arms, ammunition and suicide vests. Asia Times

It's likely that the perpetrators of Thursday's attack were from the terrorist group Lashkar-e-Taiba (LeT). This group is also probably implicated in the recent violence in Kashmir, according to India Times.

Deflationary spiral spreads across Asia

Manufacturing growth in China, South Korea and Australia slowed in June, indicating the economic rebound has peaked in a region that has led the global recovery according to Bloomberg. Export related indexes in India, Taiwan and Indonesia also slowed or fell.

This is significant because it strikes at the heart of one of the fantasy scenarios of analysts who say that stocks will keep rising forever.

The concept behind the scenario is that this is "the Asian century," when economic growth in Asia will overtake the West. More than that, growth of Asian countries will provide the "engine" that will lead America and Europe to recovery out of the global economic crisis.

The article quotes a Singapore expert as saying, "The fastest phase of the recovery process is probably behind us and the uncertainty for the second half continues to rise on the back of the European crisis. The global environment is moderating."

An article in the Telegraph quotes David Bloom, currency chief at HSBC: "Double-dip is back in the lexicon. Everybody hoped that China's huge fiscal package would keep global growth going long enough for the West to recover, but it does not look like that is happening. China is now slowing but the US housing market is falling off a cliff. It's cataclysmic. In Japan the data is turning nasty, and fiscal tightening is just starting in Europe and the UK, so everybody is asking where the growth is going to come from."

As we've been reporting for the last month, the effects of last year's global stimulus and bailout programs appears to be wearing off, and we're resuming the downward spiral in trade and transportation that occurred at the end of 2008.

This plunge is consistent with trends predicted by Generational Dynamics. As I've said many times, from the point of view of Generational Dynamics, the situation hasn't changed. The stock market has been historically overpriced by substantial amounts since 1995, and by the Law of Mean Reversion, will have to fall sharply and stay down there for a comparable length of time (15 years). This is a mathematical certainty. (See "How to compute the 'real value' of the stock market.")

Vancouver's huge housing bubble may be close to bursting

Average home sale is over $1 million (Canadian), while some real estate brokers have made over a million dollars this year.

Canada was supposed to have been clever enough to avoid the real estate bubble that's been part of the financial crisis in the United States, but now it's beginning to appear that the 2010 Winter Olympics in Vancouver seduced the Canadian people into being not so clever after all.

According to Garth Turner, a financial writer and former member of Parliament, Canada is going all the way down the road the U.S. took. "My basic view," he says, "is that we have a Canadian version of the U.S. real estate bubble. Not exactly the same, but close enough. We've relaxed lending standards, we have high unemployment, and we've reached a point of unsustainability in the housing market. I see real estate values falling shockingly."

A web site reader has sent me the link to an online game called Crack Shack or Mansion? It shows you a picture of an actual home in Vancover, and asks you to guess whether it's a crack shack or a million dollar mansion. I tried it out and got most of them wrong.

Additional links

If Russia cannot help to stem further ethnic violence in the former Soviet state of Kyrgyzstan, then the Russians will lose credibility throughout the former Soviet republics. Moscow Times

Israel and Turkey have been holding (no longer) secret talks in Brussels on how to repair their damaged relationship. Reuters

Those Israeli plans to demolish 22 Palestinian homes in East Jerusalem to make way for a park and shopping center are causing additional tensions and protests. Washington Post

In California, ATM cards used for welfare payments are being used at strip clubs. More than $12,000 in welfare funds has been dispensed to ATMs in places like Sam’s Hofbrau, Seventh Veil and Star Strip. LA Times. This news comes just two weeks after it was revealed that California's welfare recipients are using their ATM cards at gambling casinos. LA Times

The Massachusetts "Big Dig" was a $15 billion, 20 year highway project to rebuild Boston's central artery and underwater tunnels. When first envisioned in the 1980s, it was to cost $3 billion. Part of the overrun was $400 million in financial losses due to the collapse of an interest rate swaps deal engineered by the Swiss bank UBS. Bloomberg

Superstar financial reporter Andrew Ross Sorkin says that a new "Great Crash" is coming -- sooner than we think. NY Times

For Boomers: Nine technologies to ease the pain of getting old. Forbes

Why women find vampires hot. CNN

Shopping is bad for men's health. Daily Mail

(Comments: For reader comments, questions and discussion, see the 2-Jul-10 News -- New terrorist attack in Lahore, Pakistan thread of the Generational Dynamics forum. Comments may be posted anonymously.) (2-Jul-2010) Permanent Link
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1-Jul-10 News -- World economy increasingly in deflationary spiral

European banks and bond markets are back in crisis mode

Wall St. stocks fall 10% in second quarter

It really is amazing to watch the financial experts on TV on days like Wednesday, when Wall Street stocks fall sharply. They look at each other in confusion. They ask the same question over and over, and get the same collection of answers. "The market has a little farther to fall." Or, "This is a buying opportunity." Or, "I'm still expecting the market to be way up by the end of the year."

On days when the market is up sharply, they're just as confused. They look at each other with broad grins, and say "You'd better get into the market quick so you can make as much money as possible."

As we've been saying for years, the market has been substantially overpriced continuously since 1995. (See "How to compute the 'real value' of the stock market.") By the Law of Mean Reversion, the stock market has to fall to at least the Dow 3000 level. This is a mathematical certainty.

Late in 2008, worldwide trade and transportation crashed, and fell sharply almost every day until mid-March of 2009. At that time, a remarkable thing happened -- a series of very aggressive stimulus and bailout programs in the US, Europe, China, and other countries pushed stocks and profits up again in an artificial, non-sustainable way. Now those stimulus and bailout programs are all expiring, and the trend values that they propped up are all falling again.

Now as I understand it, Wednesday's stock market fall was a particularly important one because it broke through a "support level." The S&P 500 index has been bobbing up and down for a few weeks, coming down as low as 1040 several times, but never closing below it. As soon as the index fell to 1040, investors went on a buying spree and pushed it up again.

Wednesday, for the first time, the S&P 500 index closed at 1030, well below the 1040 support level. According to the financial pundits that I heard, this means that it could continue falling, probably below 1000.

Increasing signs of a deflationary spiral

The deflationary spiral was slowed by the massive stimulus and bailout programs. Now that they've pretty much ended, the deflationary spiral is accelerating.

This has been increasingly apparent for several weeks now. Early in June I wrote "7-Jun-10 News -- Globally, May was a month of ominous events.") In that article, I listed a few early signs: Sharp falls in new home sales, jobs report much worse than analysts expected, crisis levels in the European bond markets.

Top: Baltic Dry Index, 3-year; Bottom: Shanghai Composite Index, 3-year. <font size=-2>(Source:</font>
Top: Baltic Dry Index, 3-year; Bottom: Shanghai Composite Index, 3-year. (Source:

Each day it appears more and more that we're returning to conditions that occurred in the last quarter of 2008, which I compared to the old science fiction movie "The Day the Earth Stood Still" -- except that this time it wasn't science fiction. Worldwide trade and transportation crashed, along with commodity prices, because China stopped importing commodities.

Now, all the signs are pointing to the same thing. Commodities prices are falling to their lowest levels since the 2008 crash, according to Bloomberg, led by declines in industrial metals, gasoline and crude oil. According to the article, a survey of economists indicates that the US and Chinese economies will slow in the next two quarters, leading to the decline in commodities.

The graphs on the right shows two important indicators. On top, is the Baltic Dry Index, an indicator of world wide shipping. On the bottom is the Shanghai Composite Index, an indicator of China's economy. As you can see, both values achieved bubble levels in late 2007. Then, both of the crashed, by about 95% and 70%, respectively.

Throughout 2009, once the stimulus and bailout packages reached full force, the two values recovered some of their losses.

But since the end of April and the beginning of May, they've both been falling sharply again, and may be headed back to their lows of late 2008.

At the same time, Wall Street stocks may continue falling, possibly reaching and surpassing the March, 2009, lows.

There is one major Generational Dynamics prediction that we haven't yet seen: a generational stock market crash and financial panic. I used to write about this all the time, but didn't mention it during last year's rally.

But now all the signs are pointing downward, and the possibility is in play again. It needn't start on Wall Street, though it might; instead it might start in Europe or in China or in Japan. But it is coming with absolute certainty. And when it does, it will be a day that will be remembered for decades, just like October 24, 1929.

Additional links

After a brief lull, during which the crisis seemed almost forgotten, European banks and bond markets are back in crisis mode. Euro Intelligence

Spain grinds to halt on third day of strike by transportation workers. Telegraph

Moody's Investors Service said it is reviewing Spain's ratings and may lower them by as much as two levels. Spain suffers the highest level of unemployment in the euro zone at over 20%, while more than 40% of those under age 25 available for work are unemployed. Reuters

In a humorous twist, Standard & Poor's ratings agency said that it may cut the ratings of its rival, Moody's Investors Service. Associated Press

Younger generations commonly view the Holocaust with indifference, and World War II as irrelevant to their lives. Thus, an educators' conference is debating whether teaching young people about the Holocaust will prevent genocide in the future. From the point of view of Generational Dynamics, it will not. NY Times

President Obama assured the visiting king of Saudi Arabia on Tuesday that he remains committed to closing the U.S. military prison at Guantanamo Bay. Washington Post

General David Petraeus warned Congress that it could be years before Afghan troops can manage their own security. Guardian

Russian President Dmitry Medvedev warned that Kyrgyzstan's path to a parliamentary democracy is fraught with peril and could lead to a government collapse with extremists taking power. Moscow Times

As ethnic Uzbeks return to their villages in Kyrgyzstan, where their former ethnic Kyrgyz friends and neighbors killed and tortured Uzbeks, destroying their homes, they are obtaining guns in large quantities and planning revenge. The Kyrgyzstan crisis is far from over. EurasiaNet

(Comments: For reader comments, questions and discussion, see the 1-Jul-10 News -- World economy increasingly in deflationary spiral thread of the Generational Dynamics forum. Comments may be posted anonymously.) (1-Jul-2010) Permanent Link
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