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


Web Log - August, 2010


30-Aug-10 News -- Generation gap splits Iran's government

Iran labels Carla Bruni as a 'prostitute'

Generation gap widens in Iran's government

An editorial in Bahrain's Gulf Daily News chides Iranian president Mahmoud Ahmadinejad essentially for being a loudmouth.

The editorial quotes Ynet reports of provocative statements by Ahmadinejad -- Israel is "too weak" to handle an offensive in Iran, and he doesn't think that talk of an attack on Iran is "serious."

The editorial then asks, "Is there a better way to provoke the hawks in Israel and America to join forces and attempt to prove Tehran's most aggravating Israel-basher wrong? ... [This is] is nothing less than a call to arms for both Israel and America. As such, he seems to want to stimulate the West's unthinking warmongers into catastrophic action and a devastating new war. ... Ahmadinejad would do well for himself, the Gulf and the world if he bit his tongue occasionally and restrained his inordinate pride."

This kind of bombast has been going on for years. Is it just pride? After so much time, it must be part of a larger strategy.

From the point of view of Generational Dynamics, Ahmadinejad's statements are part of a larger strategy that comes from political desperation, based on the mindset of the Great Islamic Revolution of 1979, and the subsequent Iran/Iraq war that ended in 1988.

To the hardliners who survived the war, the Revolution was a miracle that the united the entire country into a powerful Islamic unit that could then expel the invading Iraqis. This was an achievement of gigantic historic proportions to the entire Muslim world, since it revived the hope that Muslims throughout the region or even the world could be united behind one government, as they'd been united behind the Turkish government before the Ottoman Empire collapsed after WW I.

As always happens in every country, the children who grow up after a crisis war don't see the world in the same way that the war survivors do. Thus, when young people started having pro-American demonstrations in the late 1990s, Iran's hardliners began to panic.

That's why a new strategy became important with the election of Mahmoud Ahmadinejad as president in 2005, and everything he said and did should be regarded as a part of that strategy -- to unite the country and the region behind Iran's government. Thus, Ahmadinejad has talked about pushing Israel into the sea and about denying the Holocaust; he's providing funding to terrorist groups Hizbollah and Hamas, to provoke them into a war with Israel.

To suggest that this is all the words of a bumbling fool who is unintentionally provoking Israel and the world is not credible. The purpose is to unify the nation again, even at the risk of provoking a military strike. In fact, a military strike by Israel or America might even be welcomed.

As the student and "green movement" protests have grown and spread, the hardliners have become increasingly desperate. The protests are not simply putting a few policies at risk; they're jeopardizing the country's entire foreign policy. Furthermore, as the economy falters, they're even jeopardizing domestic policy. The protests that began after last year's disputed June 12 presidential election even bring the survival of the entire government into question, leading to brutal violence by Iran's security forces, firing into crowds, mass arrests, torture and brutalizing protestors.

Last year, analysts at Stratfor, BBC, and elsewhere were comparing the protests to the Tiananmen Square protests in 1989, that were crushed within a few days. But as I wrote at the time, that's the wrong historical comparison.

What Iran is going through is called a generational awakening era. (See "Basics of Generational Dynamics.")

It occurs in every country when the youngsters who grow up after a crisis war rebel against their parents and the austere rules and institutions created by the older generation to prevent a new crisis war. The political chaos reaches a peak some 20-25 years after the end of the crisis war.

The correct historical comparison is to America's Summer of Love, in 1967, 22 years after the end of World War II. This was followed by almost a decade of protests, climaxing in the resignation of President Nixon, and a political victory by the young Boomer protestors.

In Iran, those analysts who expect the the generational chaos to end soon will be disappointed. Even if street protests have been discouraged, the underlying generational conflict is still exploding, as shown by an explosion of stories recently about splits between moderates and hardliners within the government itself.

(As an aside for those of you who hate Boomers, if you'd like to know what they were like when they were young and cute, just talk to young Iranians. They're in the same generational archetype as America's Boomers.)

In one story, for example, hundreds of officers in the Revolutionary Guard Corps had to resign recently, because they were supporters of the Green Movement, as reported by WSJ. (Access)

One of the most dramatic splits in the government goes to a fundamental theological contradiction within the Revolutionary spirit itself.

The fantasy is that Iran will unite the Muslim world behind Iran's government. The reality is that Iran is a Shia Muslim state, and the countries on the Arabian peninsula are overwhelmingly Arab Sunni Muslims, and there isn't a snowflake's chance in hell that they'll ever agree to be subordinate to a Persian Shia Iran.

To make matters worse, Ahmadinejad has claimed to be a devout believer in the Mahdaviat -- the Shia Muslim belief that the Mahdi (or "the 12'th Imam" or "the Hidden Imam") is coming to save mankind. This belief is roughly equivalent to the Christian belief in the second coming of Christ. (By the way, there's also a Buddhist belief in the Maitreya -- that a new Buddha is to appear on earth, and will achieve complete enlightenment.)

This zealous belief, which is not shared by Sunni Muslims or even all Shia Muslims, is a clear contradiction with the strategy of universal Muslim hegemony. (See "Theological split in Iran widens as opposition protests continue.")

Now this inside theological split has burst out into the open. In an analysis by RFE/RL, Ahmadinejad and his chief of staff, Esfandiar Rahim Mashaei, have infuriated hardliners by appearing to be making statements that move away from fundamentalist Shia Islam, and towards a more nationalist idea. In one controversial remark, Mashaei has said that Iran should be friendly with all people of the world, "including Israelis." According to the Asia Times, the right-wing factions in Iran's government are splintering so quickly that Ahmadinejad may be threatened with impeachment.

Every awakening era has a winner, and there are only two possibilities: the older generations that survived the war, or the youngsters who grew up after the war. The younger generation usually wins because, after all, the older generations die off. But if the older generations win, as has happened in China for example, it's very ominous for the country and will lead to a civil war in later years.

Right now, Iran is a schizophrenic nation, with a hardline government policy that's bitterly anti-American, and younger generations that are largely pro-American and pro-West, and who don't really have anything against Israel. Right now, it looks to me that the younger generation is going to win, but it may take a few years.

My expectation, as I've been saying for years, is that when Iran is finally forced to choose one side or the other in the Clash of Civilizations world war, they will be on the side of the West, including America and Israel. That's one very good reason why a military strike on Iran would be a bad idea.

Additional links

Carla Bruni, the wife of French president Nicolas Sarkozy, has been labeled a "prostitute" by Iran, because she is part of a campaign to save the life of an Iranian woman, Sakineh Mohammadi-Ashtiani, who is sentened to death by stoning after she cheated on her husband and tried to kill him. Daily Mail

(Comments: For reader comments, questions and discussion, see the 30-Aug-10 News -- Generation gap splits Iran's government thread of the Generational Dynamics forum. Comments may be posted anonymously.) (30-Aug-2010) Permanent Link
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29-Aug-10 News -- Hamas issues warning about Mideast peace talks

Home prices expected to fall after disastrous GDP report

Hamas seeks to benefit from expected failure of Mideast peace talks

On Saturday, Hamas leader Khalil al-Hayya has called for an uprising against the planned Mideast peace talks between Israel and the Palestinian Authority, scheduled to begin on September 3 in Washington. He said the talks were an excuse for the Palestinian government to allow Israel "to wipe out the Palestinian issue, continue Judaizing (sic) Jerusalem, continue building settlements, and erase the Palestinian right of return."

The Ynet news quotes him as directing a monologue at Israel: "Abbas and his negotiating team do not represent Palestine, Jerusalem, the refugees, or al-Aqsa, and we will not recognize any agreement signed by the Zionist enemy. Hamas continues to grow stronger and prepare for the final battle until your banishment from Palestine. Your existence is on its way to disappearing."

Hamas is the Palestinian terrorist group that gained control of the Gaza strip from Fatah and the Palestinian Authority in a war in 2008.

Fatah is in control of the West Bank, and represents the "old guard" in Palestinian politics, with leaders who survived the genocidal crisis war between Arabs and Jews that following the partitioning of Palestine and the creation of the state of israel in 1948. This group, like survivors of crisis wars in general, tends to be moderate and compromising in policies, and dedicated to preventing a new crisis war like the previous one.

Hamas was formed in the early 1980s by post-war generations, and they tend to be more radical and much less willing to compromise. In fact, the average age of the entire population of Gaza is 16, meaning that Gaza is a place which is run by children with guns and missiles.

An analysis on Saturday by the Arab News defends Hamas and blames the United States:

"Yet there is a poison pill built into these negotiations: The exclusion of Hamas. The refusal of Israel and the United States to deal with them any time even when they were freely elected to form a government in January 2006 has been injustice from the start. An artificial cleavage between them and the Palestinian Authority, under Fatah leadership, has since created an intra-Palestinian alienation that could be more difficult to heal than that between them and the Israelis themselves. Hamas is portrayed consistently as an enemy determined to destroy the State of Israel, but this is untrue. Their ambition is a Palestinians state within “the 1967 borders,” and they have become the bulwark against real extremism. Those who have actually talked with them know that they are ready to be a very positive force for making peace if they are once approached with respect. But if Americans and Israelis continue to exclude them, no option is left to them but to reject out of hand any agreement made without them, if indeed it were possible to make any such agreement. That would kill it instantly and the whole effort would be wasted.

Such an outcome is altogether unnecessary. It is clear enough that the Americans would lose the Israeli participation instantly if they were to extend a welcome to Hamas at this point. But they could establish communication with the Hamas leadership, most likely through Track II mediation, and could stop the sabotaging of their governance. They could make evident to the Palestinian participants in the process their realization that the Palestinians can accomplish nothing while disunited."

This is an interesting opinion, but it's totally at variance with the generational analysis: These are kids with guns and missiles, and they have no intention of listening to any old farts in the Palestinian Authority or Israel.

The other side of the 'Baby Boom': Collapse of birth rates

We talk a lot about Boomers on this web site. The reason that they're called boomers is that there was a "baby boom" at the end of World War II, when millions of couples that had postponed having children suddenly decided to so.

Now we're seeing the other end of the baby boom. As the financial crisis worsens, and as anxiety increases about war and terrorism, couples are once again deciding to postpone having babies.

According to the latest CDC Report, the birth rate has fallen for two years in a row:

        Year    Number of births per 1000 population
        ----    ------------------------------------
        2007    14.3
        2008    13.9
        2009    13.5

This is the lowest level in at least a century. The Associated Press quotes the demographer who wrote the report as saying, "It's a good-sized decline for one year. Every month is showing a decline from the year before."

After the Clash of Civilizations world war ends, we can once again expect a new "baby boom."

Home prices expected to fall after disastrous GDP report

It's time to let home prices fall, according to the Calculated Risk blog.

The posting quotes Tom Petruno of the LA Times:

"And since the real estate mega-bubble burst three years ago, the government has tried even more tricks to get people to sign home purchase contracts.

Now, a grim reality has set in: Despite the still-rich basket of tax breaks for residential property owners, and the lowest mortgage rates in a generation, the pool of willing or able buyers is dwindling.

Well, there is one ['fair' answer here]: Leave housing to market forces, let prices fall until buyers are motivated to come in, and hope that the economy can stand one final cathartic wave to clear the excesses of the bubble."

This is all wishful thinking, of course. Real estate prices are positioned to fall precipitously, and the idea that the government will "let" them fall is fantasy. They're going to fall whether the government wants to or not.

The resignation that house prices are going to fall follows from the latest set of dismal economic figures.

Both existing home sales and new home sales have fallen far deeper and faster than analysts had expected, as we've been reporting all week.

Then, on Friday, the Commerce Department issued a report on the Gross Domestic Product for Q2 that was disastrous. According to the report (PDF), the growth rate has been falling for three quarters in a row:

        Quarter      GDP Growth rate
        -------      ---------------
        Q1 2009      –4.9
        Q2 2009      –0.7
        Q3 2009       1.6
        Q4 2009       5.0 
        Q1 2010       3.7
        Q2 2010       1.6

The US economy was officially in a recession starting in 2008. It officially ended in Q3 2009, as can be seen by the above table. Then in Q4 the GDP growth rate was 5%, because of the effects of the stimulus and bailout programs, and much higher than analysts had expected.

Analysts were overwhelming predicting and promising a "V-shaped recovery," expected the GDP growth rate to remain at the 4-5% level each quarter.

Instead, it fell to 3.7% in Q1 of this year, and the new report is at 1.6% for Q2.

Fed Chairman Ben Bernanke seemed to be surprised by the report in a speech he gave on Friday, using words like "unexpected slowing," "disappointing," and "sharp deterioration."

What's worrying analysts is not so much the individual number as the spiraling downward trend. Whereas a few weeks ago most analysts were predicting continuous growth -- with some predicting "spectacular" growth -- I don't believe I've heard anyone in the last couple of days who expected the growth rate to be higher than 1.6% in Q3, and many expect it to turn negative, leading to a so-called "double-dip recession."

From the point of view of Generational Dynamics, there is one event that still MUST occur - a spectacular stock market crash and financial crisis that will be remembered for decades, like the one that occurred on October 28, 1929. The stock market is still overpriced by a factor of close to 200%, as it has been since 1995, and I discussed in "Updating the 'real value' of the stock market."

It's impossible to predict when this event will occur, or what will trigger it, but things have been getting very menacing since May. (See "7-Jun-10 News -- Globally, May was a month of ominous events.") Q3 earnings will start coming out on October 1, and if they turn out to be disappointing, then we may be in for an "October surprise."

Additional links

An estimated 500,000 people in the anti-incumbent "Tea Party" movement gathered on the National Mall on Saturday to hear Glenn Beck give an inspirational speech in the spirit of Martin Luther King's "I have a dream" speech at the same site, exactly 47 years ago. Sarah Palin also spoke. Not surprisingly, the NY Times coverage was incredibly snarky, but Politico and LA Times provided decent coverage.

Paul Krugman, who used to be an economist, but has turned into a hard left political columnist, was true to his new career by saying that the Democrats had to change economic policy because they need to be reelected in November. He says that "this isn’t a recovery, in any sense that matters. And policy makers should be doing everything they can to change that fact. ... Yet policy makers are in denial" by "sugar-coating economic reality," and saying that everything is ok when it isn't. NY Times

Iraq's Prime Minister Nuri al-Maliki has put the country on the highest state of alert, after the "Islamic State of Iraq" (al-Qaeda in Iraq) took credit for the recent wave of suicide bombings in cities across the entire country. CNN

The U.S. is planning to sell massive amounts of military jet fuel to the Israelis. Speculation is that either it's for an Israeli attack on Iran, or that it will provide necessary stockpiles to Israeli in case Iran shuts down the Strait of Hormuz, cutting off Israel's supply of fuel. Debka

China used to take a neutral stance on whether the various portions of Kashmir and Jammu are part of Pakistan or India. But recent policy changes indicate that China is increasingly siding with the Pakistanis against India. At the same time, Pakistan has been aiding China in quelling the revolt of the Uighurs in China's Xinjiang province. These changes are consistent with the Generational Dynamics expectation that Pakistan and China will be allied in the Clash of Civilizations world war. Eurasia Review.

It was recently reported that Pakistan's Inter-Services Intelligence (ISI) agency has decided, for the first time, that Islamist militants were now a greater threat to Pakistan's security than India. However, a security official has clarified this decision. "These are two mutually exclusive threats. The magnitude, the type, is quite different. One is an internal threat which is insidious, difficult to quantify. It is a clear and present danger. This is a very serious threat. The other is a conventional threat. What has India done, politically and militarily, for this threat to have been reduced?" He added that the threat from India has, if anything, increased. Reuters

Fierce fighting is continuing in Somalia between government forces and the al-Qaeda linked al-Shabab terrorist group. Dozens have been killed in the capital Mogadishu, and it's feared that the government is close to defeat. Eurasia Review

(Comments: For reader comments, questions and discussion, see the 29-Aug-10 News -- Hamas issues warning about Mideast peace talks thread of the Generational Dynamics forum. Comments may be posted anonymously.) (29-Aug-2010) Permanent Link
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28-Aug-10 News -- France is rebuked for deporting Roma Gypsies

Turkey says it's committed to good relations with Israel

France is rebuked for deporting Roma Gypsies

The United Nations Committee on the Elimination of Racial Discrimination has issued a report condemning France for deporting Roma Gypsies back to their countries of origin in eastern Europe, usually Bulgaria or Romania.

"Our concern is that the removal or return of the Roma has been done on a collective basis rather than examining their individual circumstances," according to a member of the committee quoted by the Telegraph.

The report also criticized "political speeches of a discriminatory nature in France."

The French government has deported over 8,000 Romanian and Bulgarian Roma so far this year, according to

"We do not accept caricatures," said Foreign Minister Bernard Kouchner, quoted by Agence France-Presse (AFP). "Never has the president stigmatised a minority because of its origin. Never will we accept that a minority be penalised for being what it is." He indicated that the Roma were being individually as foreign nationals, not by their ethnicity.

The interesting thing about the Gypsy debate in Europe is that it has the same kind of feel and intensity and the Ground Zero Mosque debate in the United States. On each side of the Atlantic, you have EXTREMELY vociferous political arguments across a xenophobic dividing line.

Here's something for web site readers to think about:

When Muslims bombed the WTC in 1993, the bombers were tried in criminal courts. There was no national outcry against Muslims.

Even after 9/11, we went to war with Afghanistan, but I can't recall anything like today's level of Islamophobia. In 2005, we gave to the Pakistanis after the tsunami, and there was no outcry.

The point I'm making is that we have a trend here: Islamophobia has been monotonically increasing from 1993 to 2001 to 2005 to the present day. What's causing that trend?

What's happened since 2005 to cause this huge change in attitude?

From the point of view of Generational Dynamics, the explanation is the disappearance of the Silent generation, the survivors of World War II. In the 1990s, we were in a generational Unraveling era, with the Silents in charge. The bombing of the World Trade Center in 1992 was small compared to what they had seen on a daily basis in WW II.

Those who had been in London, in particular, had suffered something like three 9/11's a day for months during WW II, so even 9/11 didn't cause the kind of national hysteria that the mosque is causing.

The same dynamic is happening in London with regard to the Roma Gypsies. France plans to continue exporting Gypsies for the remainder of the year, so this is going to be a major growing controversy. It'll be interesting to see whether France is forced to back down and stop deporting.

Additional links

Turkish officials visiting Washington have said that they're committed to continuing good relations with Israel. With regard to the flotilla incide, the Turkish officials said that "the incident had nothing to do with Turkey’s relations with the Israeli state or with the Jewish people, but rather was an issue with the Israeli government." Today's Zaman

MidEast peace talks begin on Sept 2, and Israel's prime minister Benjamin Netanyahu is facing the question of whether to extend the settlement building moratorium past its current ending date of September 26. Different factions of his cabinet are threatening to break away for either decision. One possible compromise will be to allow new settlements to be built only within large blocs of existing settlements. IsraCast

The Pakistan flood catastrophe continues to worsen, with 20% of the country under water, and water spreading further in the south. In the north, in Swat Valley, where the floods began almost a month ago, anger has been rising over the government's hanling of the situation, and it's likely to get worse as flood victims demand compensation for destroyed houses, crops and livestock. However, they're receiving no aid money, and they're accusing government officials of stealing the aid money. Reuters

(Comments: For reader comments, questions and discussion, see the 28-Aug-10 News -- France is rebuked for deporting Roma Gypsies thread of the Generational Dynamics forum. Comments may be posted anonymously.) (28-Aug-2010) Permanent Link
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27-Aug-10 News -- U.S. considering escalating military role in Yemen

Japan announces 17th consecutive month of deflation

U.S. considering escalating military role in Yemen

In a remarkable change in assessment, CIA analysts now see Al-Qaeda in the Arabian Peninsula (AQAP) as a greater threat to US security than the core al-Qaeda group in Pakistan and Afghanistan.

The Washington Post reported on Tuesday that this new assessment has helped prompt senior Obama administration officials to call for an escalation of U.S. military operations in Yemen, the current home of AQAP. There are no plans to scale back operations in Pakistan and Afghanistan.

The main change will be in the use of Predator drone attacks in Yemen. These are unmanned planes carrying missiles, controlled remotely by pilots, sometimes as far away as in Nevada. Pictures from the drones' cameras are transmitted back to the base, and when a target is identified, a pinpoint missile attack can be launched remotely.

According to the article, officials believe that unmanned Predator drone strikes had decimated al-Qaeda in Pakistan over the years, causing Pakistan's al-Qaeda to be relatively less dangerous to American security than AQAP.

Congressional pressure has been increasing for additional American military intervention in Yemen ever since the attempted Christmas day bombing of an airliner over Detroit by the "underwear bomber."

AQAP is thought to have trained the underwear bomber. Furthermore, AQAP is assessed as being more agile and agressive, and capable of training many more suicide bombers, so that sooner or later one of them will succeed in launching a successful terrorist attack on American soil.

In addition, Yemen is just opposite Somalia across the Gulf of Aden, and there the al-Qaeda linked al-Shabab terrorist organization is gaining power in Somalia. An al-Qaeda victory in both countries would affect the shipping lanes in the region.

Horn of Africa
Horn of Africa

An article in Germany's left-leaning Die Tageszeitung, translated by Spiegel, recognizes the danger, but warns that the West is "playing the wrong card:"

"Yemen's al-Qaida in the Arabian Peninsula and the increasingly strong and aggressive al-Shabab militia in Somalia are acting to destabilize not only their own countries but the entire region of the Arabian Peninsula and East Africa. If they were to have success in [Yemen's capital] Sana'a or [Somalia's capital] Mogadishu then it would be the greatest triumph of radical Islam since Sept. 11, 2001.

Somalia has long been a failed state and Yemen is not too far from becoming one. In both countries there are areas where the rule of law does not apply, a factor that can be exploited by international terrorists. And they are tolerated by the local population because the West continues to play the wrong card. Constant war is regarded as preferable to seeing fundamentalists take over, so corrupt officials from the central government are supported over local self-determination, and a blind eye is turned to what regional allies like Ethiopia and Saudi Arabia do, without reflecting that this only increases sympathy for the enemy. Stability should really be the highest aim in any security policy, but in Somalia and Yemen, the opposite is achieved."

However, the reaction in Yemen itself has been quite negative.

Yemen officials are saying that the U.S. has exaggerated the size and danger of al-Qaeda in Yemen, according to the Yemen News Service, and that "Yemeni forces, with the support of friends and brothers, are able to bear their full responsibilities in fighting al-Qaeda militants."

Yemen's officials are saying what they have to say, but Yemen's government is unstable for more than one reason. Not only are they fighting al-Qaeda in the south, but they're also fighting a Shia insurgency in the north.

It's believed that Iran is supplying weapons to the rebels in the north, so it's not surprising that Iran is opposed to the U.S. plan to intervene in Yemen. An article in the Iran's news service Press TV quotes Amnesty International claims, denied by the U.S., that there are already drones operating in Yemen, demanding an investigation of "the serious allegations of the use of drones by US forces for targeted killings of individuals in Yemen and clarify the chain of command and rules governing the use of such drones."

The situation in Yemen is becoming increasingly critical, and it's possible that America will soon be at war there, in addition to Iraq and Afghanistan.

Additional links

Japan's severe deflationary spiral continues. the Ministry of Internal Affairs and Communications said on Friday that consumer prices fell 1.1% in July -- the 17th consecutive month of deflation. Individual components that fell the most were education, furniture, recreation, clothing and food and medical care. Remember the good old days when Ben Bernanke and other economists used to believe that deflation was impossible with a "fiat currency"? LOL! RTT News

Honey bee colonies around the world have been dying for several years. For a long time, the cause was a mystery, but it's been found that the cause was the tiny Varroa mite. Now, a beekeeper in the UK claims to have bred a strain of bees that "groom" one another, removing the mites.He's been artificially inseminating queen bees in the hope they will establish themselves. Reuters

Hundreds of thousands of Pakistani flood refugees are pouring into Karachi, in Sindh province, possibly overwhelming the city's resources. Ethnic tensions are growing, as the Sindh nationalists are orgnizing protests and occupations by hundreds of Sindh protests, provoking confrontations with Pashtuns that have fled Taliban violence in the northwest and tribal areas. A third ethnic group, the Muttahida Qaumi Movement, or MQM, comprised of ethnic groups from India that arrived after the 1947 Partition, is joining with the Sindhis in confronting the Pashtuns. WSJ (Access)

Step by step, Islamist tenets and Sharia law are taking hold in Russia's Caucasus provinces of Chechnya and Ingushetia, raising concerns that the Kremlin is losing control of the region. Women's headscarves are turning into a major point of conflict. The Caucasus region has historically been a major crisis war battlefield across the fault line of the Muslim civilization versus the Orthodox Christian civilization, and Generational Dynamics predicts that there will be a new major war in this region. Reuters

(Comments: For reader comments, questions and discussion, see the 27-Aug-10 News -- U.S. considering escalating military role in Yemen thread of the Generational Dynamics forum. Comments may be posted anonymously.) (27-Aug-2010) Permanent Link
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26-Aug-10 News -- Suicide bombers blanket Iraq as Americans leave

World grain prices rise by up to 20% last week

Suicide bombers blanket Iraq as American combat troops leave

Suicide bombers struck 13 cities all across Iraq from top to bottom on Wednesday, killing at least 56, with hundreds wounded, according to the Independent.

The attack came a day after the US withdrew all of its combat troops from Iraq.

The bombings are thought to have been perpetrated by al-Qaeda in Iraq, to prove that they're still a power in the country.

Kenneth M. Pollack of the Brookings Institution has written an article for the Washington Post called "Five myths about the Iraq troop withdrawal." This provides a good summary of what's going on in Iraq.

"Myth # 1. As of this month, the United States no longer has combat troops in Iraq.

Not even close. Roughly 50,000 American military personnel remain in Iraq, and the majority are still combat troops -- they're just named something else. The major units still in Iraq will no longer be called "brigade combat teams" and instead will be called "advisory and assistance brigades." But a rose by any other name is still a rose, and the differences in brigade structure and personnel are minimal."

The apparent intent of Wednesday's al-Qaeda bombings is to make it politically impossible for America to continue withdrawing from Iraq.

"Myth # 2. Thanks to the troop "surge," Iraq is secure enough that it will not fall back into civil war as U.S. forces pull out.

Security in Iraq has improved enormously since the darkest days of 2005-2006, but the jury is still out on what will happen in the months and years ahead.

Extensive research on intercommunal civil wars -- that is, civil wars that, like Iraq's, were caused by a breakdown in governance that prompted different communities to fight one another for power-- finds a dangerous propensity toward recidivism. Moreover, the fear, anger, greed and desire for revenge that helped propel Iraq into civil war in the first place remain just beneath the surface.

Academic studies of scores of civil wars from the past century show that roughly 50 percent of the time, war will recur within five years of a cease-fire. If the country has major "lootable" resources such as gold, diamonds or oil, the odds climb higher still. The important bright spot, however, is that if a great power is willing to make a long-term commitment to serving as peacekeeper and mediator (the role the United States is playing in Iraq today), the recidivism rate drops to less than one in three. This is why an ongoing American commitment to Iraq is so important.

It's also worth pointing out that a civil war doesn't recur because the public desires one. Most average people recognize that civil war is a disaster. Instead, such wars flare up again and drag on because leaders still believe they can achieve their objectives by force. Until they are convinced otherwise -- ideally, by a great power's military forces -- they will revert to fighting."

This is total nonsense when applied to Iraq. As I wrote repeatedly, starting in 2003, a civil war is impossible in Iraq at this time, because Iraq is in a generational Awakening era. What happened in 2006-7 was a daily series of suicide bombings mostly perpetrated or incited by foreign fighters imported into Iraq by al-Qaeda in Iraq. There were no large groups of Sunnis and Shias fighting each other on a battlefield. There were neighborhood gunfights between Sunnis and Shias, but that's not a war, any more than Al Capone launched a civil war in the 1930s.

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 is absolutely no chance whatsoever that Iraq will have a civil war if American troops withdraw. Pollack's analysis is completely wrong.

"Myth # 3. The United States is leaving behind a broken political system.

If some on the right want to claim (wrongly) that the surge stabilized Iraq to the point that civil war is impossible, their counterparts on the left try to insist (equally incorrectly) that the change in U.S. tactics and strategy in 2007-2008 had no impact on Iraq's politics whatsoever."

This paragraph is so garbled that it's hard to even know what it means. However, I'll return to the "broken political system" point later.

"Myth # 4. Iraqis want U.S. troops to stay. Or they want them leave.

Be very, very careful with Iraqi public opinion. Polls are rarely subtle enough to capture the complexity of Iraqi views. Typically, they show a small number of Iraqis who want the Americans out immediately at any cost, a small number who want them to stay forever and a vast majority in the middle -- determined that U.S. troops should leave, but only after a certain period of time. When Iraqis are asked how long they believe our troops are needed, their answers range from a few months to a few years, but are strongly linked with however long the respondent believes it will take Iraq's forces to be able to handle security on their own."

This is true. The Iraqis really don't know what they want. They're in a generational Awakening era, so all they really want to do is argue with each other.

"Myth # 5. The war will end "on schedule."

Much as we should all want the Obama administration to succeed in Iraq, this statement by the president in a speech to veterans this month should also make us wary. If uttered in the first act of a Greek tragedy, it is exactly the kind of claim that would end in a Sophoclean fall."

Well, there isn't a war going on, so it's hard to know what to make of Obama's claim that the war will end on schedule. However, it's certain that the roadside bombs and suicide bombings won't stop on any sort of schedule. In that sense, the war will never end.

I'd now like to return to the question of whether Iraq has a "broken political system."

One way to understand what's happening in Iraq today is to look at what happened in Iraq in the decades following Iraq's previous crisis war, the Great Iraqi Revolution of 1920. In my April 2007 article, I quoted some of the Library of Congress history of Iraq. What's amazing is that today "groken political system" is very similar to the one of the 1930s. Here are some excerpts:

"On October 13, 1932, Iraq became a sovereign state, and it was admitted to the League of Nations. Iraq still was beset by a complex web of social, economic, ethnic, religious, and ideological conflicts, all of which retarded the process of state formation. The declaration of statehood and the imposition of fixed boundaries triggered an intense competition for power in the new entity. Sunnis and Shias, cities and tribes, shaykhs and tribesmen, Assyrians and Kurds, pan-Arabists and Iraqi nationalists--all fought vigorously for places in the emerging state structure. Ultimately, lacking legitimacy and unable to establish deep roots, the British-imposed political system was overwhelmed by these conflicting demands."

Today, it's the "American-imposed political system" being overwhelmed by these conflicting demands. Eventually, by the 1960s, the political system was so chaotic, that it took a torturing dictator like Saddam Hussein to prevent a complete collapse of the government.

So call Iraq's political system "broken," if you wish, but it's perfectly normal for Iraq at this time on its generational timeline, and it makes no difference whether Americans are there or not.

I've always expected that American troops would have to remain in Iraq until they were forced to withdraw by the Clash of Civilizations world war. The real question is whether al-Qaeda will make it politically impossible for America to withdraw completely from Iraq.

More bad economic news: New home sales, durable goods, Ireland downgrade

The bad news keeps pouring in, as the deflationary spiral really begins to take hold.

As I've been saying, the economy started spiraling downward in May, as the bailout and stimulus programs in America, China and Europe have run out of gas, and as the Law of Diminishing Returns kept them from having any further effects anyway.

Additional links

Worldwide prices on wheat, barley and other grains has been skyrocketing as much as 20% in the last week. According to this article, the fault lies with commodities speculators. Spiegel

German firm Hypo Real Estate, which was seized by the German government in 2009, has foreclosed on Snowmass Village, a huge $1-billion resort in Aspen, Colorado, in a spectacular real estate failure. Foreign banks held $35 billion of U.S. commercial real estate loans as of last month, and more than $15 billion is classified as troubled, meaning delinquent, defaulted, foreclosed or in bankruptcy, up from $10 billion a year ago. Bloomberg

A venomous speech by Hamas' Damascus-based political leader Khaled Meshaal on Tuesday, directed at Palestinian president Mahmoud Abbas, has made the breach between Hamas and Fatah final and irrevocable. Hamas is planning large-scale terror attacks Israeli and Palestinian West Bank targets, according to Debka, which has contacts within Israeli intelligence, but sometimes gets things wrong.

Former president Jimmy Carter arrived in North Korea on Wednesday, intending to return to America with North Korean prisoner American Aijalon Mahli Gomes. Some analysts are wondering whether the unpredictable Jimmy Carter will attempt to negotiate nuclear policy, against the desires of the Obama administration. Former President Bill Clinton went on a similar mission last year and freed two prisones, but no policy changes resulted from it. CS Monitor

South Korean government officials believe that North Korean president Kim Jong-il is visiting China. His son, Kim Jong-un, who is the heir-apparent to the presidency, is accompanying the president. Chosun

The European Parliament will open in September with a debate on xenophobic acts by France, Belgium and Italy, in expelling Roma (Gypsies). EurActiv

An unnamed U.S. official says that the Taliban plans to conduct attacks against foreigners, including Americans, who are participating in the ongoing flood relief operations in Pakistan. BBC

(Comments: For reader comments, questions and discussion, see the 26-Aug-10 News -- Suicide bombers blanket Iraq as Americans leave thread of the Generational Dynamics forum. Comments may be posted anonymously.) (26-Aug-2010) Permanent Link
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25-Aug-10 News -- Existing home sales plunge 27%

Suicide bomber kills 30 in Somalia, including 7 members of Parliament

Existing home sales fall 27%, shocking analysts

In June, I posted 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.")

July 2010 - existing home sales <font face=Arial size=-2>(Source: Bloomberg TV)</font>
July 2010 - existing home sales (Source: Bloomberg TV)

Since that time, I've reported on one trend after another that confirms that this is continuing, including jobs trends, manufacturing trends, GDP, and collapsing European economies (Greece, Spain).

On Tuesday, analysts were stunned to learn that existing home sales fell 27.2% nationwide from a month early. This was more than twice as bad as expected by analysts, who had expected a fall of only 12.1%.

The LA Times quotes one analyst as saying, "You are seeing the sales drop off a cliff again, and that is really starting to scare people. Are we going to have a double dip? Nobody knows."

A number of analysts claimed that the figures were anomalous or outliers. The justification for this claim is that the homebuyers' tax credit expired for purchase agreements signed after April 30. Many people rushed to sign agreements before the deadline, and those deals closed in May and June, and so the reasoning goes that the July number is only temporary, and it will be back to "normal" by August or September.

Well, that might be true, but the above charts don't support it. The third chart shows the rate of existing home sales of a 20 year period. The housing bubble began in the mid 1990s, and peaked in the mid 2000s decade. Since then, existing home sales have been falling steadily -- except for the brief period in which the homebuyers' tax credit was in effect. I've drawn a yellow line on the graph to show the general downward trend, and the July plunge appears to be returning to the long-range downward trend. In other words, it's the increase in sales in the previous months that were the anomaly. We're now returning to the actual trend.

In fact, the figures for housing are devastating. There is already a 12.5 month inventory of homes on the market. Not counted in that is the "shadow inventory" of foreclosed and delinquent homes held by banks, but not yet put on the market. (See "'Shadow inventory' of unsold homes continues to grow.")

And not counted in those two groups are houses that are "sidelined." I hadn't heard this term before today, when it was discussed by an analyst on tv. This refers to people who would like to sell their homes, but are holding off doing so in the hope that the housing prices will start going up again. If you add this group to the two groups described in the previous paragraph, there are probably 3-4 years of inventory on the market or waiting to go on the market.

For months, so-called "experts" have been promising that the end of the housing bubble, and the prosperity that goes with it, were just around the corner. I heard one expert today on television predict an "upside surprise" after Labor Day, and a stock market surge by the end of the year. It's exactly the same promise I've been hearing month after month, ever since the financial crisis began in October, 2007.

Meanwhile, the second quarter GDP report is due out Friday, and some analysts have expressed fear that it will be lower than expected.

Additional links

Somalia's al-Qaeda linke al-Shabab terrorist group conducted a suicide attack on a hotel in Mogadishu that killed 30 people, including seven members of Parliament. VOA

Somalia's government says that hundreds of foreign fighters have joined al-Qaeda linked terrorist groups in Somalia, from countries including Afghanistan, Pakistan and the Arabian peninsula. The al-Shabab terrorist group has gone from a local threat to a regional threat, as it's launched attacks in Uganda and Kenya. Reuters

Authorities investigating the 2008 crash of Spanair flight 5022 have discovered a central computer system used to monitor technical problems in the aircraft was infected with a trojan horse style computer virus. The infected computer failed to detect several problems that would have aborted takeoff. Tech News Daily

If you're interested in horse racing, and even if you're not, take a couple of minutes to watch this video of the 7th race at Monmouth Park on Monday. YouTube is a dating web site for ugly people. "Just because they don't look like Kate Moss or Cheryl Cole doesn't mean they don't have a lot of love to give," according to the owner. The Sun

(Comments: For reader comments, questions and discussion, see the 25-Aug-10 News -- Existing home sales plunge 27% thread of the Generational Dynamics forum. Comments may be posted anonymously.) (25-Aug-2010) Permanent Link
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24-Aug-10 News -- Ariel's Bobrinskoy gives price/earnings fantasy

Italy wants to follow France in expelling Gypsies

Investment chairman Charles Bobrinskoy gives price/earnings fantasy

In the 2006-2008 time frame, I used to write about some of the ridiculous things that I heard on CNBC or Bloomberg TV, especially when they lied about price/earnings ratios (also called valuations).

I haven't done that as much lately, because it's hard to know what to choose; probably 75% of everything said on CNBC and Bloomberg TV is utter nonsense.

But what I heard on Monday from Charles Bobrinskoy, Vice Chairman, Director of Research, Ariel Investments has infuriated me so much, that I had to do it again.

This is going to be a rant, but in this interview, they discuss price/earnings ratios that are total fantasies. These are the kinds of people who caused the global financial crisis, and they ought to be in jail.

Here is the interview of Charles Bobrinskoy by Bloomberg TV anchor Matt Miller:

MILLER: Let me ask you. They were saying that this was the kind of fear that you wanted to buy that old Benjamin Graham / Warren Buffett cliché. But is it the truth?

Charles Bobrinskoy, Ariel
Charles Bobrinskoy, Ariel

BOBRINSKOY: Absolutely. I would not feel that way if valuations were high.

But they are ridiculously low. You've got high-quality large-cap stocks are trading at some of their the lowest multiples since the 1970s. You've got a higher dividend yield on J&J than a government bond, which is ridiculous. You've got got great value here, even in depressed earnings. You do not want to buy when people are afraid that the earnings are not there, but the earnings are there, and the values are there, so this is absolutely a right time to buy.

MILLER: When you say "ridiculously low," it's sounds like you're talking about some pretty specific names. For the market as a whole at 14 times, that's not ridiculously low - that could get cheaper.

BOBRINSKOY: Well, 14 times the S&P -- I think it's less than 14 times. I don't know what ... people have different estimates for the S&P, but for large cap quality, we would put it under 13 times.

You're right, there are cyclical names that are trading at higher multiples, maybe 14 times trailing, but going forward I would put the overall market at something like 12.5.

MILLER: For the record, 14.2 times trailing, 12.8 times forward looking.

So Brobrinskoy puts the S&P 500 P/E ratio at 14, or maybe 13, or maybe 12.5, and Miller agrees. Are those figures correct?

Well, let's go to the Wall Street Journal page that provides the current S&P 500 price/earnings index:

Price/Earnings Ratios -- S&P 500 P/E ratio circled in red <font face=Arial size=-2>(Source: WSJ)</font>
Price/Earnings Ratios -- S&P 500 P/E ratio circled in red (Source: WSJ)

I've circled the correct figure in red -- the S&P 500 P/E index, based on trailing earnings, is 16.53 -- not 14, not 13, not 12.5, but 16.53.

Also, take a look at the chart on the bottom of the home page of this web site -- it shows the S&P 500 P/E ratio for the last ten years, and it's never been below 16 in the entire decade.

And so Dear Reader, before going any further, I'd like to ask your opinion. Which of the following words and phrases best describes Brobrinskoy?

So where did Brobrinskoy's (and Miller's) numbers come from? Well, I've answered this many times before, most recently in my article several weeks ago, "Updating the 'real value' of the stock market."

In this case, they talk about "forward earnings," which are analysts' estimates of how much these companies will earn next year. They don't have a clue how much these companies will earn next year, and historically analysts' estimates are twice as high as they turn out to be.

They're also using "operating earnings," which are fraudulent earnings values obtained by adding back "one time expenses" into the earnings, and then calling everything possible a "one time expense."

The REAL P/E ratio is based on AS-REPORTED earnings for the last year, and that comes out to 16.53.

One reader criticized me, saying that it's just as valid to use "operating earnings" for everything as "as-reported earnings."

Well that's probably true, but there's a catch. The historical average for P/E ratios based on as-reported earnings is about 14. And so, with the market today at 16.53, the market is a lot more expensive than the historical average. Valuations are certainly not "ridiculously low," as they are in Brobrinskoy's fantasy.

If you use P/E ratios based on "operating earnings," then you have to compute the historical average for that measure, and it's going to be a lot lower than 14. Nobody knows what the historical average is for P/E ratios based on "operating earnings," since brokers only started using that measure in the late 1990s, as they needed a way to convince people to invest, even though stocks were in a huge bubble. My guess is that it's around 8 or 9, and I would make the same guess for P/E ratios based on "forward earnings."

Thus, if the current S&P 500 P/E ratio based on operating and/or forward earnings is 12 or 13, then it's still "ridiculously high," and stocks are still ridiculously overpriced.

Now let's look at a bit more of what Brobrinskoy said, because he actually lied in two different ways. He also said, "You've got high-quality large-cap stocks are trading at some of their the lowest multiples since the 1970s." Now, maybe he's talking about one or two particular stocks that he has in mind, but I get the impression that he's talking about the bulk of large-cap stocks -- like the 30 stocks in the Dow Jones Industrial Average (DJIA). As you can see from the WSJ chart above, the P/E ratio for those stocks is 13.78.

Is that likely to be their lowest values since the 1970s? Hardly. Here's the graph I included in my article several weeks ago:

S&P 500 Price/Earnings Ratio (P/E1) 1871 to August 2010
S&P 500 Price/Earnings Ratio (P/E1) 1871 to August 2010

As you can see, the S&P 500 P/E ratio fell to 6.79 in 1982. Well, maybe Brobrinskoy was only exaggerating a little -- he really didn't mean the 1970s. He actually meant the 1980s. Or maybe the 1990s. What's a decade or two?

But even referring to the 1990s is deceptive, because that's when the tech bubble began. So he's claiming that stocks are cheap compared to the tech bubble, which is at best deceptive, and at worst a lie.

Now that the rant has almost exhausted itself, I guess I should apologize for picking on poor Brobrinskoy. After all, he's just doing what everyone else does. He may be a crook and a liar and a thief, but the norm on Wall Street, CNBC and Bloomberg TV is to be a crook and a liar and a thief. And you can't be a crook if everyone else is a crook, can you?

I keep saying that the same people who brought about the financial crisis are still doing the same things today, only more so. This is a perfect example. This is fraud, either through lying or through incompetence. And this is the norm today -- on Wall Street and in Washington.

How pathetic these people are. Take another look at the article that I wrote in April, "Financial Crisis Inquiry hearings provide 'smoking gun' evidence of widespread criminal fraud." This article shows that these financial experts, some of whom have been described as mathematical geniuses, must have purposely committed criminal fraud, in order to collect huge commissions, fees and bonuses. Do I think that Brobrinskoy knows that what he's saying is a lie? There's no doubt in my mind whatsoever.

Additional links

Applauding France for expelling some of its population of Gypsies, Italy now wants to do the same. Italy's interior minister will ask the European Commission to endorse the plan. EurAcriv

French President Nicolas Sarkozy faces nationwide strikes and falling approval ratings, as harsh austerity measures take hold, to reduce the country's soaring deficit. Reuters

Another country is going into a debt crisis. Moody's has cut the rating on bonds from the Kingdom of Bahrain, because of increased spending and debt, and because the price of oil has been falling. Bloomberg

There were two more suicide bombings on Monday in Pakistan's tribal areas. LA Times

The City of Philadelphia has been sending out letters to bloggers telling them that if they're going to blog, then they must pay $300, the price of a "business privilege license" that allows you to have a business in Philadelphia. I wonder how much brotherly love that policy will spawn? Washington Examiner

Due to a diplomatic spat, Saudi Arabia is limiting the number of Saudi students who will be able to attend Australian universities. The policy is being extended to other western nations as well. Arab News

What do women find to be the most annoying of men's habits? According to a new poll, it's leaving the toilet seat up. Don't forget to read the comments on this story. Independent

How to be frugal and still be asked out on dates. NY Times

(Comments: For reader comments, questions and discussion, see the 24-Aug-10 News -- Ariel's Bobrinskoy gives price/earnings fantasy thread of the Generational Dynamics forum. Comments may be posted anonymously.) (24-Aug-2010) Permanent Link
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23-Aug-10 News -- China is ready for war

A new Pentagon report describes China's military capabilities and strategy

Pentagon releases 'Military and Security Developments' on China

In 2005, I quoted General Zhu Chenghu, a top-level Chinese army officer, as saying what would happen if America interfered with Taiwan: "If the Americans are determined to interfere [then] we will be determined to respond. We ... will prepare ourselves for the destruction of all of the cities east of Xian [a city in central China]. Of course the Americans will have to be prepared that hundreds . . . of cities will be destroyed by the Chinese." (See "Furious Chinese ambassador harshly threatens U.S. over Taiwan.")

That threat seemed distant in 2005, but according to a new DOD report on Military and Security Developments Involving the People’s Republic of China (PDF) General Zhu's threat could be carried out today.

According to the report:

"China is modernizing its nuclear forces by adding more survivable delivery systems. For example, in recent years the road mobile, solid propellant [DongFeng] DF-31 and DF-31A intercontinental range ballistic missiles (ICBM) have entered service. The DF-31A, with a range in excess of 11,200 km [7,000 miles], can reach most locations within the continental United States (CONUS)."

In addition, "China is developing and fielding large numbers of advanced medium-range ballistic and cruise missiles, new attack submarines equipped with advanced weapons, increasingly capable long-range air defense systems, electronic warfare and computer network attack capabilities, advanced fighter aircraft, and counter-space systems."

While China's nuclear capabilities are far less than those of the U.S., and China claims to have a "no-first use" policy towards nuclear weapons, the strategy is to threaten unacceptable damage on the enemy:

"Beijing’s official policy towards nuclear deterrence continues to focus on maintaining a nuclear force structure able to survive enemy attack and respond with sufficient strength to inflict unacceptable damage on the enemy. The new generation of mobile missiles, maneuvering and MIRV warheads, and penetration aids are intended to ensure the viability of China’s strategic deterrent in the face of continued advances in U.S. and, to a lesser extent, Russian strategic intelligence, surveillance, and reconnaissance; precision strike; and missile defense capabilities."

Thus, it seems to me, that General Zhu's threat could be carried out today -- and I have no reason to believe that Zhu was lying or even exaggerating. Thus, from China's point of view, if there were a war and all cities east of Xian were destroyed, China's People's Liberation Army (PLA) would still maintain the capability to launch missiles that would destroy hundreds of American cities.

Strategic priorities

The report lists the following strategic decisions that guide China's leaders:

According to the report, "China’s leaders describe the initial decades of the 21st century as a “strategic window of opportunity,” meaning that regional and international conditions will generally be conducive to China’s rise to regional preeminence and global influence, and seek to prolong that window of opportunity as much as possible."

From the point of view of Generational Dynamics, there are several problems with these priorities.

The first issue is economic. China's economy almost crashed in the last half of 2008, along with the global economy. China recovered, along with the global economy, by massive stimulus and bailout programs injecting some $10 trillion into the world economy. By the Law of Diminishing Returns, this cannot continue to be effective, and anyway, the political era of big bailouts seems to be over for a while. Furthermore, China is the midst of a real estate bubble of almost unbelievably gargantuan proportions. Mainstream economists agree that China cannot continue with its current rate of growth, and yet it needs to in order to prevent social unrest.

And that's the second problem. China has a long history of massive nationwide rebellions, and the CCP knows it as well. There are tens of thousands of "mass incidents" every year, and the number of growing. The CCP has held things together by means of a powerful security force and stimulus spending, but the right kind of trigger could trigger an economic panic and a social rebellion.

The Pentagon report recognizes this, and says:

"Communist Party leaders continue to rely on nationalism, based on China’s economic achievements and increased international profile, to improve the legitimacy of the Party. However, this approach contains risks. Although China’s leaders have stoked patriotic sentiment to manipulate public opinion and deflect domestic criticism of the CCP, they are aware that these forces can be difficult to control once begun and could easily turn against the state."

I listen to commentators on tv all the time who complete ignore generational changes and social unrest. It's incredible to me how naïve so-called experts are, but at least the Pentagon report appears to recognize the issue.

Taiwan, Tibet and South China Sea

The report identifies Taiwan, Tibet and South China Sea as China's three main territorial disputes.

We've discussed each of these at length in the past, but here we only wish to focus on the Taiwan issue.

"Despite a reduction in tensions following the March 2008 election of Taiwan President Ma Ying-jeou, the possibility of a military conflict with Taiwan and U.S. military intervention remain the PLA’s most pressing long-term military concerns. A potential cross-Strait conflict will drive China’s military modernization as long as China’s leaders judge that the permanent loss of Taiwan could seriously undermine the regime’s political legitimacy and hold on power."

The report lists seven "red lines" which, if crossed, would lead to a Chinese military attack on Taiwan:

The report indicates that Beijing might use a "measured approach" at military action, or "surprise to force rapid military and/or political resolution before other countries could respond."

According to the report, "If a quick resolution is not possible, Beijing would seek to: Deter potential U.S. intervention; Failing that, delay U.S. intervention and seek victory in an asymmetric, limited, quick war; or, Fight to a standstill and pursue a political settlement after a protracted conflict."

From the point of view of Generational Dynamics, these choices are not really choices, since the U.S. and China would be at full scale war within days or, at most, weeks. Both countries are in generational Crisis eras, and so any trigger at this time would escalate.

As I've said many times, the U.S. could be at war with China tomorrow over Taiwan. Thus, China's seven "red lines" listed above are also red lines for the United States.

I've heard so-called experts claim that we could simply choose not to come to Taiwan's defense. I can't emphasize too strongly what a fantasy this is. In a generational Crisis era, there would be an immediate, overwhelming American political response to counter China's invasion of Taiwan.

(As a modern day example of what can happen, I like to point to the 2006 war between Israel and Hizbollah that took place mostly on Lebanon's soil. In that war, Israel panicked, miscalculated, and attacked Hizbollah and Lebanon within four hours after the kidnapping of two soldiers -- with no plan, and no clear objectives. Once the war began, Israel blundered from one objective to another, one plan to another. The entire war was pursued through improvisation. See "How Israel panicked in pursuing the summer Lebanon war with Hizbollah.")

Finally, I have to point out that American has no choice but to defend Taiwan in case of a Chinese invasion. We have a defense agreement with Taiwan, and if America decided to "let Taiwan go," then countries like Japan and Israel, with whom we also have defense agreements, would go into nationwide panic, creating worldwide instability.

Cyber warfare: China is ALREADY at war

The report pays special attention to cyber warfare, and indicates that China has already begun action in this arena:

"Cyberwarfare Capabilities. In 2009, numerous computer systems around the world, including those owned by the U.S. Government, continued to be the target of intrusions that appear to have originated within the PRC. These intrusions focused on exfiltrating information, some of which could be of strategic or military utility. The accesses and skills required for these intrusions are similar to those necessary to conduct computer network attacks. It remains unclear if these intrusions were conducted by, or with the endorsement of, the PLA or other elements of the PRC government. However, developing capabilities for cyberwarfare is consistent with authoritative PLA military writings.

In March 2009, Canadian researchers uncovered an electronic spy network, apparently based mainly in China, which had reportedly infiltrated Indian and other nations’ government offices around the world. More than 1,300 computers in 103 countries were identified."

China responded specifically to the cyber warfare portions of the report with an immediate rebuttal in Xinhua:

"Chinese experts on Tuesday refuted claims by the Pentagon released in a report that China is developing cyberwarfare capabilities, saying that the U.S. military was attempting to blacken China's image.

"I've never heard about any plans by China to develop its cyber attack forces, not to mention China's so-called 'organized cyber intrusion," Hu Qiheng, president of the Internet Society of China (ISC) told Xinhua on the sidelines of the China Internet Conference, which opened here Tuesday.

"It is a mere fabrication that China is using computer technologies to intrude on other countries' sovereignty," Hu said."

China disliked the entire Pentagon report, but it's interesting that they singled out the cyber warfare section for specific denials.

Obstacles and limitations for China

In the past, I've pointed out some fairly substantial military disadvantages that China has versus the United States, especially social instability and inexperience in foreign wars. The report also focuses on some of these weaknesses.

One example is their lack of experience in "Integrated Joint Operations":

"China’s military has been working for several years to develop the capability to conduct integrated joint operations (IJO), a concept the PRC believes essential to modern warfare. IJO are characterized by the integration of multiple service elements under a joint command headquarters, making full use of advanced information technology and a networked command platform. China’s research, training, and preparations for joint operations have evolved substantially since the promulgation of its first joint campaign doctrine in the late 1990s, but serious challenges limit the PLA’s ability to conduct IJO through at least 2010. ...

Obstacles. China’s military leaders recognize and acknowledge that one of the primary obstacles to IJO is that many PLA commanders have little or no training for, or experience operating in, a joint environment. Key challenges include a shortage of commanders and staff qualified for such operations; a lack of understanding of the capabilities, equipment, and tactics of the other services; and a lack of advanced technology to enable communication and information sharing among the services."

This illustrates a point that I've made several times in the past. Whatever you may think of the Iraq and Afghanistan wars, they've given America a great deal of experience in actual field use of new technologies, where the Chinese have no such experience.

There are similar issues with the Navy:

"The introduction of more mobile systems will create new command and control challenges for China’s leadership, which now confronts a different set of variables related to deployment and release authorities. For example, the PLA has only a limited capacity to communicate with submarines at sea, and the PLA Navy has no experience in managing a SSBN fleet that performs strategic patrols with live nuclear warheads mated to missiles. Land-based mobile missiles may face similar command and control challenges in wartime, although probably not as extreme as with submarines."

China's reaction to the Pentagon report

China's official response was posted in Chinese on the Ministry of Defense web site. The following is the machine translation of the entire statement (with some grammatical corrections). It's worth reading in its entirety.

"Defense Department spokesman: China firmly opposes the U.S. Department of Defense report

2010-08-18 15:19:30 Source: Department of Defense Web site of: Gilbert Time :2010-08-18 15:19:30

Department of Defense Web site on Aug. 18 Xinhua Li Jia Report: China's Defense Ministry spokesman Colonel Geng Yansheng 18 interview that: U.S. Department of Defense recently released the 2010 annual "China-related military and security Development Report." The report ignores the objective facts, accusing China's normal national defense and army building, rendering Taiwan a so-called "military threat" by the mainland, accused the United States suspended military exchanges between China hampered military cooperation. The Chinese side expresses its resolute opposition.

China unswervingly take the road of peaceful development, firmly pursues a defensive national defense policy, and does not engage in arms race or pose a military threat to any country. China's military development is reasonable, appropriate, and is to defend national sovereignty, security and territorial integrity, but also to adapt to the rapid development of the world's new military changes in the trend. Chinese military has actively conducted exchanges and cooperation, and safeguards world peace and regional stability.

China always attaches importance to China-US military relations, and has made unremitting efforts. The report published by the United States is not conducive to the improvement and development of military relations. We ask the U.S. side to look at China's national defense and army building, to stop two armed forces is not conducive to Sino-US relations and mutual trust of the words and deeds, to stop publication of "China-related military and security Development Report", for the improvement and development of military relations to create a good atmosphere and conditions."

This response undoubtedly comes right from the top -- from President Hu Jintao. So what does it mean? Is this another Adolf Hitler promising "peace in our time" to a Neville Chamberlain? Or does Hu sincerely believe what he says, and has no intention of using the huge military force that he's overseeing?

I actually believe that Hu is sincere. Born in 1942, Hu is a member of the "Artist archetype" generation that grew up during very bloody Communist Revolution that ended in 1949. And like America's Silent Generation, they spend their lives doing everything possible to prevent a recurrence of the last crisis war. (See my similar discussion a couple of days ago about Palestinian Authority President Mahmoud Abbas in "21-Aug-10 News -- Mideast peace talks to begin on Sept 2.")

When I think of someone in this generation, I often think of President Bush's Secretary of Defense Donald Rumsfeld. He was a perfectly nice guy, always polite to everyone, and you'd think that he wouldn't hurt a fly. But one day at a press conference, he was asked a question about collateral damage from bunker-buster bombs. His response was very genial, as I remember: "We're not trying to be nice to these people; what we want is to KILL them."

That, I think, illustrates how people like Rumsfeld, Abbas and Hu think. Growing up during the horrors of a generational crisis war, they suffer a kind of generational child abuse that makes them indecisive leaders who devote their lives to doing everything to prevent a recurrence of the crisis war. But the other side is that they know that a new war may well be inevitable, and when a decision is made (by others in the government) that they must pursue war, then they'll do so vigorously and ruthlessly. They're indecisive decision makers, but they're powerful implementers.

I wrote about this in 2006, when Hu came to Washington and presented a gift to President Bush -- A silk edition of the famous Chinese war classic, Sun Tzu's The Art of War. (See "Eerie similarity: Chinese President Hu Jintao and Donald Rumsfeld.")

No one in the press that I saw even commented on what might be the significance of this gift, but to me it was clear. He was sending the message, "I don't want a war, but you must realize that you may take some steps that will result in war." However, it was not just a message of threat; it was a message of sadness.

The American public's obliviousness

On Sunday on CNN, I heard Nina Hachigian of the Center for American Progress say the following, with regard to our relationship with China:

"And it will be increasingly tense, I agree with you. But I also don't think this is the world of 100 years ago where we have to worry about China's military threat to us. I don't think that's it. We now have these global factors that impact both of us. The global financial crisis saw the U.S. and China together enacting large stimulus packages to prevent the whole economy from falling off a cliff. We also work together on terrorism. We work together on food security. We've worked together on North Korea, although not that well lately. And there are these huge imbalances, and yet global warming. If we and China don't work together, we're all sunk."

I'm totally astonished by statements like this. Does she really not know that Britain and Germany also worked together on many things, and fought two wars anyway?

In an article a couple of years ago ("The gathering storm in the Caucasus"), I quoted John Maynard Keynes, in his 1920 book, The Economic Consequences of the Peace, describing the world economy prior to World War I:

"The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth ... he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world....

[He] regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement ... The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion ... appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice."

We're in the same international atmosphere today. In 1914, it all came crashing down when Austrian Archduke Franz Ferdinand was assassinated by a Serb high school student, triggering the massive war. If a high school student could trigger a war in 1914, then anyone could do it today.

Additional links

Through well over two millennia of Chinese history, the glorified emperors were those who expanded Chinese territory; those who made concessions and ceded land to the barbarians are condemned as the "criminals of history." This Taiwanese perspective on the Pentagon report relates to Chinese history, and shows why no compromise is possible on Taiwan. China Post

The situation in the South China Sea has deteriorated lately, and three key players have emerged - China, the United States and Vietnam. These are the three "elephants" who are dancing in the region, endangering stability. And when the elephants are dancing, the smaller creatures get trampled. RSIS

The Pentagon report on China has increased Taiwan's anxieties about the possibility of a Chinese invasion of Taiwan. As a result, Taiwan President Ma Ying-jeou is pleading for the U.S. government to provide advanced F-16 war planes so that Taiwan can defend itself from China. RTT News

In an effort to avoid further hostile reactions from China, the U.S. has decided that the forthcoming joint naval drills with South Korea in the Yellow Sea will not involve the nuclear powered aircraft carrier U.S.S. George Washington. The George Washington did participate in the last joint exercises, but they took place in the Sea of Japan, which is farther from Chinese territory. JoongAng

The North Koreans have a Twitter account, and as soon as it posted its first tweets, the South Korean government blocked South Koreans from accessing the site. Reuters

Pakistan is not the only region being drowned by torrential rains and vast floods. The Yalu River, which acts as a border between China and North Korea, has been overflowing its banks in both countries, creating the worst floods in a decade. Over 100,000 people had to be evacuated. Guardian

A "black swan" is the popular term for an event that should happen only once every 100 years, but happens anyway. It's exactly the kind of event that might trigger a war with China, as I've been discussing above. Actually, "black swan" events can only happen during certain generational eras, usually crisis eras, and in crisis eras, they really aren't so improbable. Here's how to prepare for the next "black swan," and to profit from a market calamity -- unless it doesn't work. WSJ (Access)

Hamas canceled direct peace talks with Fatah and the Palestinan Authority, after the Palestinian Authority agreed to have direct peace talks with Israel. Jerusalem Post

Violence is continuing in the south of Yemen between security forces and militants from Al-Qaeda on the Arabian Peninsula (AQAP), with multiple killings on Saturday. Yemen has also been fighting against militants in the Shia-dominated areas of northern Yemen, and there are fears that the Yemen government will collapse. Al-Jazeera

As we've written many times, Iran is in the most volatile period of a generational Awakening era, and you can expect further chaos of the kind that forced Richard Nixon to resign in 1974. In fact, a political split is growing within the conservative factions of Iran, triggered by president Mahmoud Ahmadinejad's chief of staff Esfandiar Rahim-Mashaei. Rahim-Mashaei said that Iran's Shia Islam is the only true form of Islam -- undermining the intentions of the hardliners to gain hegemony over the entire Arabian peninsula, which is mostly Sunni. RFE/RL and Asia Times.

On hot days, Chinese men like to roll up their shirts and expose their stomachs. These men are called "bang ye," which means "exposing grandfathers," even though men of all ages do it. They don't care when they draw smirks from fashion-conscious passersby. Officials in Beijing and Shanghai have been trying to discourage the uncouth habit, without much success. LA Times

(Comments: For reader comments, questions and discussion, see the 23-Aug-10 News -- China is ready for war thread of the Generational Dynamics forum. Comments may be posted anonymously.) (23-Aug-2010) Permanent Link
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22-Aug-10 News -- The global rise of xenophobia

Islamophobia in America and Europe is only a small part of the issue.

Islamophobia grows in America, as xenophobia grows around the world

The word "Islamophobia" has been in the news a lot this week, after Time magazine ran a cover article wondering where America had become Islamophobic.

Is America Islamophobic? <font size=-2>(Source: Time)</font>
Is America Islamophobic? (Source: Time)

The question arises because of two major news stories in the last week:

I've been startled by the level of irrational Islamophobia, especially on the right, that I've seen in the last couple of weeks because of these two stories.

But I see it as the mirror reflection of the widespread xenophobia from the left, directed at Christians and even America in general. Every political and ideological group today is simultaneously xenophobic toward someone and outraged at other groups' xenophobia.

These kinds of xenophobia are growing, and something that I've been discussing for years on my web site. Generational Dynamics predicts that this kind of xenophobia grows in all societies in a generational Crisis era, once the survivors of the previous crisis war (WW II) all disappear (retire or die), all at once.

It's worth pointing out that the level of xenophobia in America hasn't grown to the level it has in Europe. I've reported on such events for years: the sudden growth in popularity of the British National Party in the UK, and how Holland became increasingly nationalistic when filmmaker Theo van Gogh was murdered by a Muslim extremist. And this week we've seen stories in France about expelling the Gypsies.

These kinds of stories come and go during any generational era, but in a generational crisis era they grow and become more frequent, and become manifest in discussions about terrorism, immigration, and ethnic violence.

Let's return to the subject of the floods in Pakistan, and American and European xenophobia about Pakistan. The floods been going on for three weeks now, and incredibly, they keep getting worse, and more regions, especially in the Sindh province in the south, are being flooded. One-fifth of the entire country is now under water.

People should realize that the vast majority of Pakistanis are ordinary people with families who are suffering enormously because of the floods.

Pakistan has been much more victimized by al-Qaeda and Taliban violence than almost any other country in the world, including the US. Suicide bombings, beheadings, blowing up girls' schools, etc., have forced millions of Pakistanis, especially in Swat Valley, to flee for their lives -- and this was before the floods. (See "After a week of terrorist carnage across Pakistan, the army declares war on militants.")

Terrorist attacks in Pakistan have targeted ordinary civilians, police installations, and even other Muslim sects. (See "10-Jul-10 News -- Pakistan shocked again by terrorist attack.") So Pakistanis have suffered far more from Islamist terrorism than Americans have.

Anti-Americanism in Pakistan is widespread, but it's not because Pakistanis hate Americans, any more than Americans hate Pakistanis; it's because Pakistanis blame the rise of Taliban and al-Qaeda violence on actions by the Americans in the Afghan war and in bombing Pakistan's tribal areas. This conclusion is irrational.

Thus, Pakistani xenophobia about Americans is parallel to, and just as irrational as, American xenophobia about Pakistanis.

Some people are claiming that God is using the floods to punish the Pakistanis for hating Christians and Jews. By EXACTLY the same reasoning, you should conclude that Allah used 9/11 and Katrina to punish Americans for hating Muslims and Arabs.

This kind of xenophobia is occurring around the world, and Generational Dynamics predicts that it's going to continue to grow, as more and more people in the generations of World War II survivors die off. In particular, the mutual xenophobia between Americans and Chinese has been growing for years, and will continue to grow. As the xenophobia keeps growing, it's only a matter of time before someone gets pissed off and starts a world war.

(Comments: For reader comments, questions and discussion, see the 22-Aug-10 News -- The global rise of xenophobia thread of the Generational Dynamics forum. Comments may be posted anonymously.) (22-Aug-2010) Permanent Link
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21-Aug-10 News -- Mideast peace talks to begin on Sept 2

Is President Barack Obama a Muslim?

Mideast peace talks announced for Sept 2, to beat Sept 26 deadline

How many times have I written about the dance? The first major Generational Dynamics prediction that I made on this web site was that the "Mideast Roadmap to peace" would fail, and that Jews and Palestinians would be re-fighting the genocidal war that occurred following the partitioning of Palestine and the creation of the state of Israel in 1948. Well, the peace plan never went anywhere, but it's been resuscitated several times for new "peace talks," with the resuscitations alternating with the three Mideast wars (Israelis vs Hizbollah in Lebanon in 2006, Palestinian Fatah vs Hamas in Gaza in 2008, and Israelis vs Hamas in Gaza in January, 2009) since then.

So now the dance begins again. On Friday, US Secretary of State Hillary Clinton announced that new face to face peace talks would begin between Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President Mahmoud Abbas.

Former Sen. George Mitchell, who is President Obama's envoy to the Mideast, said that the goal of the negotiations was to end the Middle East conflict "for all time," according to CNN. I have no way of knowing whether the reporters listening to this rolled their eyes or even chuckled at this statement. This would be accomplished, as in the Roadmap to Peace, with side-by-side Israeli and Palestinian states. Mitchell added, "I believe the two leaders ... are sincere and serious and believe it can be done and will do everything possible to see that it is done."

The first meeting will be held on September 2 in Washington. An early date was desired because there's a kind of deadline: Last year, Israel agreed to a 10-month moratorium on building new settlements in the West Bank, and the moratorium expires on September 26.

However, that already has become a point of contention that may sink the meetings before they even start. The Israelis have said repeatedly that they would not extend the moratorium, and Reuters quotes chief Palestinian negotiator Saeb Erekat as demanding that the moratorium be extended: "If the Israeli government decides to announce new tenders on Sept. 26, then we won't be able to continue with the talks,"

However, according to EurActive, while a majority of Netanyahu's inner cabinet oppose extending the settlement freeze, a minority are seeking a compromise. The proposal might be that Israel would be allowed to build settlements in areas that Israel expects to keep in a peace deal, but not in areas that it would hand over in a land swap with the Palestinians. Whether the Palestinians would consider this an acceptable compromise to continue the peace talks remains to be seen.

In May, 2003, when the Roadmap to Peace was announced, it was widely assumed that peace was at hand, once Yasser Arafat retired or died. I wrote at the time that Arafat was not the one preventing a peace agreement; it was the younger generations that didn't want it. That's still true today.

Unlike in 2003, skepticism about the peace talks today is very high. The same issues that prevented peace talks in the past are just as much issues today -- the building of settlements, the right of return of Palestinians to their grandparents' and great-grandparents' property, the protection of Israelis from Palestinian suicide bombers, and so forth. It's not that the old folks don't want to compromise on these issues; it's that the young Palestinians -- and even many young Israelis -- don't want to compromise on these issues.

According to an editorial in Haaretz, the agreement to hold peace talks is a small diplomatic victory for Netanyahu, because he demanded peace talks "without precondition," and got his way. However, that victory could dissolve very quickly, over the settlement issue or any of the other issues we discussed.

And what about Abbas? Agreeing to face to face talks with the Israelis, after he had said that it would never happen without certain guarantees, is a bit of a humiliation, and surely he must know that there isn't a snowflake's chance in hell that the peace talks would succeed. So why did he agree to it?

Abbas was born in 1935, and lived through the genocidal war between Arabs and Jews, and has spend his entire life with the objective of never allowing anything like that to happen again.

It's worth repeating some extracts from an interview, translated by Memri, in which Abbas stressed his commitment to the peace talks:

"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."

Abbas also expressed much sadness during the interview, 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."

And so, at the end of his career and possibly his life, Abbas is making one last try to prevent a recurrence of the bloody 1948 war, even though a part of him knows that a recurrence can't be avoided.

Is President Barack Obama a Muslim?

A growing number of Americans believe that President Barack Obama is a Muslim, according to a recent Pew Research poll.

The belief that Obama is a Muslim has increased most sharply among Republicans, but even among Democrats, only 46% say that Obama is a Christian, down from 55% in March, 2009.

One thing that surprised me as I researched this article is that, although Obama is not a Muslim today, he USED TO BE a Muslim.

According to a May 12, 2008, article in the NY Times:

"As the son of the Muslim father, Senator Obama was born a Muslim under Muslim law as it is universally understood. It makes no difference that, as Senator Obama has written, his father said he renounced his religion. Likewise, under Muslim law based on the Koran his mother’s Christian background is irrelevant.

Of course, as most Americans understand it, Senator Obama is not a Muslim. He chose to become a Christian, and indeed has written convincingly to explain how he arrived at his choice and how important his Christian faith is to him.

His conversion, however, was a crime in Muslim eyes; it is “irtidad” or “ridda,” usually translated from the Arabic as “apostasy,” but with connotations of rebellion and treason. Indeed, it is the worst of all crimes that a Muslim can commit, worse than murder (which the victim’s family may choose to forgive)."

The article goes on to say that Obama's apostasy would cause complications in dealing with the Islamic world if he became President. "But of all the well-meaning desires projected on Senator Obama, the hope that he would decisively improve relations with the world’s Muslims is the least realistic."

Additional links

A gloomy state unemployment report on Friday says that more states posted rising jobless rates in July than in the previous month. CNN Money

Reports of cybercrime in Switzerland in 2009 were much higher than in 2008. Swiss Info

Shale oil extraction in the United States has gotten off to a slow start, but there is one little-publicized success story: In the course of three years, oil production in the North Dakota's Bakken formation has jumped to 135,000 barrels per day in 2009 from recoverable reserves now estimated at nearly 4 billion barrels. Reuters

Food prices have been following an upward trend since 2000, and the recent droughts in Russia and Ukraine have focused attention on the coming food crisis, caused by rising global populations and demand for food, climate change-related crop failures, higher fuel and fertiliser prices, speculation on commodity markets, dysfunctional global agricultural markets and greater biofuels production. Africa and Afghanistan are the two regions that will be hit the hardest at first. EurActiv

Women activists would like to set sail in a ship from Cyprus next week, with the intent of breaking the Gaza blockade, but the Cyprus police say that they won't allow the ship to leave. Reuters

After many days' delay, Pakistan is finally agreeing to accept $5 million in flood aid from India. Pakistan snubbed a similar offer after the tsunami in 2005. Dawn

Pakistan is clamping down on Islamist militant charities that hope to exploit anger against the government and undermine the fight against groups like the Taliban. Reuters

Protests and violence are continuing in Indian-controlled Kashmir, as two people were killed by Indian security forces on Thursday. Separatist sympathizers have strongly condemned the killing of an 8 year old boy by Indian troops, saying that police were targeting the young boys to suppress the pro-freedom sentiment in the occupied territory. South Asia News Agency

Radical Islam continues to spread in Russia's province of Chechnya, and now women are being threatened and harassed if they don't wear headscarves. Analysts say that the growth of Islamic Sharia law in the Russia's Caucasus regions are a major blow to Kremlin efforts to control the region. Reuters

A fascinating story about how Adolf Hitler snubbed Winston Churchill for dinner in 1932, and how the war between Britain and Germany was also a personal war between Hitler and Churchill. Spiegel

(Comments: For reader comments, questions and discussion, see the 21-Aug-10 News -- Mideast peace talks to begin on Sept 2 thread of the Generational Dynamics forum. Comments may be posted anonymously.) (21-Aug-2010) Permanent Link
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20-Aug-10 News -- Bad economic news stuns investors

Arab states cut financial aid to Palestinians

Investors 'stunned' by bad economic news on Thursday

Investors were "stunned" on Thursday by a bunch of job news stories that indicate that the economy is spiraling downward.

In June, I posted 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.")

Since then, I've reported on one trend after another that confirms that trend. It seems increasingly certain that things will be pretty bad in the fall.

From the point of view of Generational Dynamics, the worst is yet to come, including a major stock market crash and financial crisis.

Additional links

Arab states have cut financial aid to the Palestinian Authority (PA), and countries like Saudi Arabia are not fulfilling their promises. The PA will face a serious liquidity crisis in September, and will have difficulty paying salaries. Reuters

Russia and Belarus have been on bitterly disagreeable terms since the breakup of the Soviet Union in 1991, but relations may improve after the coming presidential elections, since they may result in the defeat of Belarus president Alexander Lukashenko after 16 years in power. Spiegel

The U.S. State Dept. said on Thursday that a new agreement for the start of direct peace talks between Israel and the Palestinians is close to completion. I wonder how long it will be before someone pisses someone off again, and the whole thing collapses? VOA

(Comments: For reader comments, questions and discussion, see the 20-Aug-10 News -- Bad economic news stuns investors thread of the Generational Dynamics forum. Comments may be posted anonymously.) (20-Aug-2010) Permanent Link
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19-Aug-10 News -- France orders expulsion of Gypsies

The Mosque at Ground Zero

France's president Sarkozy orders expulsion of up to 15,000 Gypsies

Gypsy populations in Europe <font face=Arial size=-2>(Source: WSJ)</font>
Gypsy populations in Europe (Source: WSJ)

The Roma -- also known as Gypsies or by the politically correct euphemism "travelling people" -- are a semi-nomadic ethnic group that have been persecuted for centuries. The was even a Nazi holocaust of Romas. Today, there are some 350,000 Gypsies in Europe, mostly in eastern Europe. (Roma people are not Romanians except, of course, when they live in Romania.)

There are some 15,000 Gypsies living in France, many living in unathorized refugee camps or abandoned buildings. France's President Nicolas Sarkozy has ordered a crackdown on Roma living in some 300 unauthorized campsites, according to Radio France Internationale.

By the end of the month, 700 Roma will be returned to their countries of origin, usually Bulgaria or Romania, and more will be expelled in the months to follow.

The expulsion of the Gypsies is part of a larger law and order plan by Sarkozy, according to WSJ (Access). Other measures proposed by Sarkozy and his political party are to strip French citizenship from people of foreign origin who were convicted of trying to kill police or other public officials, and to imprison the parents of delinquent children.

The law and order drive is popular with the French people, but the expulsion of the Gypsies is causing widespread human rights criticism, according to Agence France-Presse (AFP). Romania's foreign minister expressed the view that the economic crisis was causing "xenophobic reactions" in France.

France's Green Euro-MP party called Sarkozy's policy "state racism," according to AFP, and a Le Monde editorial says that the policy activates "racist impulses."

From the point of view of Generational Dynamics, xenophobia is a characteristic of generational Crisis eras, resulting in political conflicts in mild cases, and in full scale wars in the worst scenarios.

The Mosque at Ground Zero

We see a similar dispute of this kind going on in the U.S. with respect to the proposal to build a mosque next door to the Ground Zero site where the World Trade Center was brought down by Islamist terrorists on 9/11/2001. This has resulted in a drama of almost comic proportions, with a lot of politicians saying things and making fools of themselves. The NY Daily News reports that Nancy Pelosi, who is arguably the nation's politicizer-in-chief, is accusing her opponents of politicizing the issue, and is calling for an investigation of the finances of those who oppose the mosque, as if the families of 9/11 victims need to be paid to oppose the mosque.

On the one hand, you have a great deal of xenophobia, as well as a lot of people who are genuinely offended by the idea of a mosque at Ground Zero. On the other hand, you have the loony left that couldn't care less about the mosque, but see it as an opportunity to humiliate the United States.

Outside of those who sympathize with the victims of 9/11, no one actually believes the strongly held opinions they claim to have. This is shown by the fact that no one cares about the Greek Orthodox church that used to stand near Ground Zero, according to Fox News, but no one is applying the same principles to the Greek Orthodox Church that they're apply to the mosque.

Muslims themselves have a much more sensible view of the dispute. Memri quotes Al-Arabiya director Al-Sharq Al-Awsat as saying that, "The majority of Muslims do not want or need a mosque near ground zero," and adds:

"Because the idea of a mosque right next to a site of destruction is not at all an intelligent one. The last thing Muslims want today is to build a religious center that provokes others, or a symbolic mosque that people will visit as a [kind of] museum next to a cemetery.

"What the citizens of the U.S. fail to understand is that the battle against the 9/11 terrorists is not their battle. It is a Muslim battle – one whose flames are still raging in more than 20 Muslim countries... I do not think that the majority of Muslims want to build a monument or a place of worship that tomorrow may become a source of pride for the terrorists and their Muslim followers, nor do they want a mosque that will become a shrine for the haters of Islam... This has already started to happen: [the Islamophobes] are claiming that a mosque is being built over the corpses of 3,000 U.S. citizens who were buried alive by people chanting 'Allah akbar' – the same call that will be heard from the mosque..."

Additional links

Japan and India are close to signing a nuclear cooperation agreement, where the Japanese will build nuclear reactors in India. This corresponds to the agreement that China has to build nuclear reactors in Pakistan. As I've said in the past, I expect Pakistan to be allied with China, and Japan and India to be allied with the U.S. in the coming Clash of Civilizations world war. South Asia Analysis Group

Swat Valley in northwest Pakistan used to be a favored and glamorous vacation spot for Pakistanis and rich Europeans alike. But first there was the devastating earthquake of 2005; then there was the invasion of the Taliban, and their reign of terror; and now the astonishingly vast floods have made the region a disaster zone. Spiegel

No heavy rains are forecast for Pakistan this week, but even without more rain, the floods will last at least until the end of the month. RFI

The unemployment rate is as high as 70% in some parts of Greece, as the country's draconian austerity measures reduce the country's budget deficit, at enormous social cost. As shops and businesses shut down, Greece appears to be in a death spiral, with no end in sight. "Things are starting to simmer here," says an unemployed shipbuilder. "And at some point they're going to explode." Spiegel

After years of debate over whether low-fat diets were better or worse than low-carbohydrate (Atkins) diets, the question has been resolved: They're both equally effective, or ineffective, depending on your point of view, but neither is better than the other. NY Times

(Comments: For reader comments, questions and discussion, see the 19-Aug-10 News -- France orders expulsion of Gypsies thread of the Generational Dynamics forum. Comments may be posted anonymously.) (19-Aug-2010) Permanent Link
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18-Aug-10 News -- The collapse of the Gaza tunnel economy

Pakistan's government is snubbing flood aid from India

The collapse of the Gaza tunnel economy

The May confrontation between the Israel Defense Force (IDF) and the "freedom flotilla" that tried to break the Gaza blockade has had an unexpected consequence.

That confrontation resulted in the deaths of nine Turkish citizens, and resulted in international outrage and demands for Israel to end the blockade.

Israel never agreed to end the blockade, but they ended up changing the import rules: Anything can be imported into Gaza except for a specific list of items, things like weapons or building materials that Hamas, the terrorist group governing Gaza, could use to build bunkers.

Up until that time, there was a vigorous "tunnel economy" in Gaza. Thousands of Gazans were employed digging tunnels under the wall separating Gaza from Egypt, and then smuggling all kinds of goods through those tunnels.

But now that many of these goods can be imported legally, the tunnel economy is going through a "depression," as the people who built, maintained and smuggled goods through the tunnels are now mostly unemployed. The unemployed include people who were some of the best paid Palestinians in Gaza, earning some 120 shekels ($32) a day, according to Reuters.

At their peak, there were 2,500-3,000 tunnels in operation, but now there are just 50 operational tunnels, with only 10 working at any one time, according to the article. Palestinian merchants now buy their goods from Israel, rather than from smugglers.

The end of the tunnel economy is actually a disadvantage to Hamas, according to CS Monitor. Hamas has benefited in two different ways from the blockade: first by generating international sympathy and playing the victim, and second by shifting the economy to the black market that it largely controls.

However, Hamas remains firmly in control of Gaza, as the Palestinian Authority remains in control of the West Bank. As I've been writing since 2003, from the point of view of Generational Dynamics, the region will be re-fighting the genocidal was between Jews and Arabs that followed the partitioning of Palestine and the creation of the state of Israel in 1948.

Additional links

Pakistan's government is refusing to acknowledge or accept millions of dollars in flood aid offered by the Indian government, just as they snubbed aid from India after the 2005 tsunami. This is what my mother used to call "cutting off your nose to spite your face." Times of India

In four days, Russia will deliver nuclear fuel to Iran's Bushehr nuclear reactor. This means that after four days, Israel can no longer launch an attack on Bushehr, for fear of triggering widespread radiation. Jerusalem Post

The Pentagon has released its annual report on the military capabilities of China. We will have more to say about this report in the coming days, but suffice it to say that China is fully capable of a large-scale missile attack on the U.S. and the Pacific fleet. Department of Defense

An analysis of the Afghanistan war concludes that the U.S. withdrawal from Afghanistan will leave the Taliban in control of "vast areas" of the country. Memri

Pakistan's Inter-Services Intelligence (ISI) agency now says that homegrown Islamist militants have overtaken the Indian army as the greatest threat to Pakistan's national security. This is the first time since Partition in 1947 that India hasn't been viewed as the top threat. WSJ (Access)

A new book debunks the myth that Hitler was a heroic soldier during World War I who was radicalized by the war, leading to the birth of the Nazi movement. Newly discovered letters and papers suggest that Hitler was referred to as a "rear area pig" (Etappenschwein) by his comrades, and that the heroic story was fabricated by Nazi propagandists. Independent

I actually met chess champion Bobby Fischer once, when we were both teenagers and I was in NYC and made an improptu visit to the Manhattan Chess Club. He was kind of a childhood hero of mine -- until he lost by default to Spassky in 1974, and then later turned into a Nazi. Anyway, he died in 2008, and a nine year old Filipina girl has been claiming to be Bobby Fischer's daughter, but a DNA test proves that she isn't. BBC

(Comments: For reader comments, questions and discussion, see the 18-Aug-10 News -- The collapse of the Gaza tunnel economy thread of the Generational Dynamics forum. Comments may be posted anonymously.) (18-Aug-2010) Permanent Link
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17-Aug-10 News -- Iran announces new uranium enrichment centers

'Hindenburg Omen' predicts stock market crash

Iran announces ten new uranium enrichment centers

Western governments are alarmed by reports by the state-controlled Press Tv news service that Iran will begin construction of ten new uranium enrichment centers next year.

Currently, Iran's Natanz enrichment facility is enriching uranium to a level of 20%, and another facility is already under construction. An Iranian official is quoted as saying, "Studies for the location of 10 other uranium enrichment facilities have ended. The construction of one of these facilities will begin by the end of the (current Iranian) year (March 2011) or start of the next year."

Iran claims that they need to produce 20% enriched uranium for a medical research reactor, but former U.N. weapons inspector David Albright, in an interview with the LA Times says that these reasons aren't credible.

According to Albright, Iran already makes far more than enough 20% uranium to fuel the medical research center. He asks, "Why are they doing this? This could just be centrifuge people trying to be more efficient, or it could be that they want to make 20% material that is way beyond what they need for the research reactor, so you do have to ask: Is there a hidden weapons motivation?"

This comes at a time when many people are wondering if either Israel or the U.S. is planning a military strike to take out Iran's nuclear capabilities. The Arab countries don't want Iran to have nuclear weapons either, and both Saudi Arabia and the United Arab Emirates have recently indicated that they might approve military action.

Iran's statements on Monday were alarming. One would not be blamed for wondering if Iran were intentionally trying to provoke an actual attack.

Iran's strategy

I've described Iran's strategy many times, but a summary is appropriate here.

Iran's last crisis was was the 1979 Great Islamic Revolution, followed by the Iran/Iraq war that ended in 1988. Like any crisis war, it unified the country behind its leaders.

Today, Iran is in a generational Awakening era, and last year experienced massive student protests, along with political opposition that's expected to last for years. The geriatric leaders are desperately searching for a strategy that will unify the country again behind its leaders, just as occurred in the 1980s and 1990s.

The strategy they're using is the strategy that worked in 1979 -- blame everything on the Great Satan (the U.S.), and even provoke a military action that will force the population to support its leaders, just as the Iraqi invasion of Iran did. (See "China 'betrays' Iran, as internal problems in both countries mount"),

From the point of view of Generational Dynamics, this strategy works during a generational Crisis era, but cannot possibly work during a generational Awakening era. Even a U.S. military strike will not unite the Iranian people behind their leaders, as the students will blame the government for provoking the strike.

Iran is a schizophrenic country, with a bitterly anti-American and anti-Western leadership, but where the younger population is generally pro-American and pro-West, and have no particular desire to see Israel pushed into the sea. Iran's leaders are aware of this, and their attempts to reverse those attitudes cannot succeed during an Awakening era.

However, even the younger population favors Iran's nuclear program. They know that Saddam used weapons of mass destruction (poison gas) during the Iran/Iraq war, and the Iranians are surrounded by countries (Pakistan and Israel) that already have nuclear weapons.

On the other hand, the Israelis and the Arabs are extremely anxious about the possibility of Iran obtaining a nuclear weapon, and it's possible that a military strike on Iran will occur.

As I've said in the past, it's my expectation that when forced to choose in the Clash of Civilizations world war, Iran will be on the side of the West.

Additional links

The internet is buzzing about the "Hindenburg Omen," a set of technical indicators that supposedly indicate an imminent stock market crash. The conditions for the Hindenburg Omen were met last week, but other analysts claim that it's all meaningless. CNBC

Swaziland has the highest HIV/Aids infection rate in the world, and the lowest life expectancy, but experts are puzzled about why Swazis have resisted all attempts to change the behaviors that put them at risk for AIDS. Reuters

On Sunday, Financial Times reported that the Barack Obama had personally warned Turkish Prime Minister Recep Tayyip Erdogan that the U.S. would refuse some armed sales to Turkey, if it doesn't change its position on Iran and Israel. But Turkey's President Abdullah Gül denies that any such threat had been made. Zaman

Israel's Prime Minister Benjamin Netanyahu began a visit to Greece on Monday to develop closer Israeli-Greek ties, just as relations between Israel and Turkey have been souring. Greece and Turkey are historic enemies, but both Greece and Israel deny that they're forming an alliance against Turkey. Deutsche Welle

Pakistani flood victims blocked highways on Monday to protest the lack of government help. Public anger has grown after two weeks of floods, and hundreds of villages have been marooned. The situation continues to deteriorate. Reuters

(Comments: For reader comments, questions and discussion, see the 17-Aug-10 News -- Iran announces new uranium enrichment centers thread of the Generational Dynamics forum. Comments may be posted anonymously.) (17-Aug-2010) Permanent Link
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16-Aug-10 News -- U.S. and S. Korea begin massive military exercises

Boomers threaten the U.S. economy

U.S. and S. Korea begin massive military exercises

The United States and South Korea will hold 10 days of joint military exercise, beginning Monday, and continuing through August 26. The exercises are called the Ulchi Freedom Guardian (UFG) war games, and they've been held every year to maintain readiness in case North Korea invades South Korea. The 1950s Korean war ended in a stalemate, and technically the two countries are still at war.

The participation will be massive -- about 30,000 American troops and 56,000 South Korean soldiers, according to VOA. However, many of the participants will take part remotely, using computer simulations and communications.

The nuclear-powered aircraft carrier U.S.S. George Washington will take part, and the U.S. has said that some of the exercises will take part in the Yellow Sea.

The war games take place as tensions have increased substantially on the Korean peninsula, after the South Korean warship was sunk by an explosion on March 26, killing 46, and later investigations indicated that the sinking was caused by a North Korean torpedo.

As usual, the North Koreans put out a statement filled with angry bluster. Yonhap quotes the North Korean statement as saying, "Now that the uproar of the reckless military drill aiming at our republic has heightened to an extreme ... our military and people will wield the iron hammer of a merciless response. Our military's reaction will be the worst punishment anyone has ever experienced." Blah, blah, blah.

China's state-controlled media Xinhua also reacted angrily, saying, "The real intention of the U.S. maneuvers in the waters of Northeast Asia, the commentary said, is to consolidate the U.S.-South Korea and U.S.-Japan military alliance and boost U.S. military presence in the region, and therefore intimidate and contain China. Washington's intention to contain China becomes clearer as it tries to interfere in the South China Sea disputes and strengthen its military presence in Southeast Asia, said the magazine. To a larger extent, the U.S. moves reflect the Obama administration's ambition to return to Asia to seek dominance of regional affairs."

However, another article in the Chinese media downplays the importance of the exercises. The Global Times says that "Worries over US aircraft carrier [are] overstated," and that "the US sending a carrier to the Yellow Sea just demonstrated that Sino-US relations are not as intense as some people argue." The article points out that an aircraft carrier would be extremely vulnerable to missile attack sailing so close to the Chinese mainland, and the fact that the U.S. is willing to risk sailing into the Yellow Sea "is of more symbolic significance than practical significance."

The article adds that the U.S. is not planning any military move against China because "At home, the US economy is weak and debts are piling up; while overseas, the prospect of failure in Afghanistan grows ever more likely."

It adds, "As the US extends its battle line, the limited number of US military is like a stretched dumpling wrapper around Europe, Middle East, South Asia, and now even East Asia. The stuffing of the dumpling is swelling, while the wrapper is getting thinner and thinner."

Boomers threaten the economy

That was the headline on the home page of on Sunday.

According to the article (Access), the Boomers ARE threatening the U.S. economy. How? By spending less!

Boomers spending less <font face=Arial size=-2>(Source: WSJ)</font>
Boomers spending less (Source: WSJ)

According to the article, Boomers haven't saved for retirement, no one will hire them, and they've lost money in the stock market. The result is that they have far less money to spend. For several decades, Boomers have been the main consumer spending engine of the economy, and if Boomers cut back, then the economy will suffer.

Additional links

Face to face talks between Israelis and Palestinians may begin again soon, after having been broken off two years ago. LA Times

On Sunday, Japan, South Korea and China commemorated the 65th anniversary of Japan's surrender, ending World War II. Associated Press

Deadly smog still fills the air in Moscow from the wildfires. Guardian

VisitBritain research provides tips for Brits who want to be the best hosts possible to foreign visitors to the 2012 Olympics in London. Some samples: "A smiling Japanese person is not necessarily happy." "When meeting Mexicans it is best not to discuss poverty, illegal aliens, earthquakes or their 1845-6 war with America." "Never call a Canadian an American." BBC

(Comments: For reader comments, questions and discussion, see the 16-Aug-10 News -- U.S. and S. Korea begin massive military exercises thread of the Generational Dynamics forum. Comments may be posted anonymously.) (16-Aug-2010) Permanent Link
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15-Aug-10 News -- Talk of a coup in Pakistan

Bond yields for Greece, Spain and Ireland once again at crisis levels

Pakistan floods become epic disaster

Saturday was the 63rd anniversary of Pakistan's Independence Day, but the celebrations were muted by the unfolding and growing catastrophe facing the country, with 20 million people were homeless from the floods, according to Pakistan's prime minister Yousaf Raza Gilani, and the torrential monsoon rains are continuing. Cholera is spreading, and many isolated groups of people are starving because the floods have destroyed food supplies.

U.N Secretary-General Ban Ki-moon is visiting Pakistan to see the devastation for himself. VOA quotes him as saying, "We will try to mobilize all necessary assistance. And remember that the whole world is behind the people of Pakistan in this time of trial."

The United Nations has appealed for $459-million to deal with the immediate aftermath of the floods, saying billions of dollars will be needed in the long term. However, aid organizations are surprised that financial aid has been very slow in coming.

In his Independence Day speech, Gilani compared the ongoing disaster to the huge genocidal war between Muslims and Hindus that followed the 1947 Partition that created Pakistan and India. Pakistan's Daily Times quotes him as saying, "The nation will confront the challenges as it did at time of Partition, with the blessings of Almighty Allah. This time too we shall succeed."

Little help from the international community

In the speech, Gilani appealed to the nations of the world to aid Pakistan, but little aid so far has been forthcoming.

This has been a shock to aid organizations, who compare the aid received from individuals for the Pakistan floods -- about $10 million -- to the hundreds of millions of dollars donated for the South Asia tsunami in 2004 or the Haiti earthquake earlier this year, according to the Telegraph.

At the governmental level, the United States has been leading the way with $80 million in aid, and the UK is in second place, but many other countries have contributed little or nothing. The Daily Times asks, "Are Saudis, Iranis not Pakistan's friends anymore?" Except for Kuwait, Turkey and the UAE, no Islamic country has donated a penny to help Pakistan.

Saudi Arabia, which has given nothing to its Pakistan ally, donated $50 million to aid for the Haiti earthquake, according to an analysis by the Hindustan Times. The article provides three reasons why aid has been slow in coming:

Another reason is provided by the Daily Times article cited above. It seems that during the 2005 Kashmir earthquake, India offered $500 million in aid to Pakistan, but "the offer was refused by Pakistani authorities in the first place and whatever was allowed in was let to rot at security checkposts on the border." This snub would not be easily forgotten by the Indians.

I personally would add one more reason. In the past six months, the mood of the world has changed. At the time of the Haiti earthquake early this year, it was widely believed that the financial crisis was over, and that the economy would experience a "V-shaped recovery" in the Spring, with a surge in corporate hiring.

Today, that mood has almost reversed. Both consumers and corporations are holding on to cash for fear that business will collapse again or that joblessness will go up again. (See "12-Aug-10 News -- Wall Street turns pessimistic.")

This change in mood is one more reason for the reluctance to provide aid to Pakistan.

Will Pakistan's government survive?

As I reported a few days ago, a protestor threw shoes at Pakistan's President Asif Ali Zardari during a speech in Britain last week. Now I'm shocked to read in the Guardian that several Pakistan cable television stations have been shut down for trying to broadcast the story of the shoe-throwing. There are additional bans affecting news coverage of the relief efforts, and this is on top of violence being perpetrated against some journalists.

When a government resorts to this kind of newspaper censorship, it's a sign that the politicians believe that the government is in trouble.

A constant theme of public criticism in the past week has been that Pakistan President Asif Ali Zardari didn't cut short his trip to France and Britain when the floods became disastrous.

Zardari is an odd figure in Pakistan's government. He would never have become President, had it not been for the assassination of his wife, Benazir Bhutto. Zardari is a Shia Muslim, in a largely Sunni Muslim government, where most of the power is in the hands of the army and the intelligence services, both largely Sunni organizations. And, of course, the Taliban are Sunni extremists.

Pakistan has had a number of coups in the last few decades, so it's not surprising that a coup is being discussed now. Thus, the Karachi News says that there's talk of the Pakistan army 'plotting the overthrow' of the Zardari government.

So far, this is just talk and rumor. But there's no doubt that Zardari is less popular than ever, and it would not be surprising at all if he were forced out of office.

Additional links

Corporations are going on a "borrowing binge" by issuing high-risk "junk bonds" at very low interest rates. Even though the bonds are very risky, investors are snapping them up, hoping to recover money they've lost in the stock market. WSJ (Access)

Something similar is happening in Europe, as yields on German bonds are falling, while bond yields for Greece, Spain and Ireland are once again reaching crisis levels. Bloomberg

India has reimposed a curfew in Kashmir, after four more protestors were killed when security forces fired into the crowd. Reuters

Russia's Foreign Ministry has formally thanked the United States for help in fighting the wildfires. Ria Novosti

Ten reasons why a stock market crash may be coming. #1: P/E ratios are too high. #2 The Fed is getting nervous. #3: Too many people are bullish. #4: Deflation is already here. Wall Street Journal (Access)

(Comments: For reader comments, questions and discussion, see the 15-Aug-10 News -- Talk of a coup in Pakistan thread of the Generational Dynamics forum. Comments may be posted anonymously.) (15-Aug-2010) Permanent Link
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14-Aug-10 News -- Germans selling submarines to Greece and Portugal

German prosecutors are investigating corruption

Prosecuting investigating sales of German submarines to Greece and Portugal

The near-default of Greece's government several months ago forced the EU to agree to a huge bailout. (See "11-May-10 News -- Europe's super-nuclear bailout.")

And as we reported yesterday, the bailout hasn't helped much, as Greece's economy shows signs of collapsing.

Portugal has not yet come close to defaulting, but it's one of the PIIGS countries (Portugal, Ireland, Iceland, Greece and Spain), and with a faltering economy and heavily in debt, many fear that it's not far behind Greece.

Both countries are implementing severe austerity programs to reduce the debt, and try to stave off default. These austerity programs are creating enormous hardships for their people.

So why are these two countries purchasing German-built submarines and other weapons, with money that they don't have? And why were some of these deals signed just as the bailout was being negotiated?

That's what German prosecutors would like to know. Deutsche-Welle reports that they're investigating corruption between German and Greek officials who sought to benefit from the bailout at a time when the German people were strongly opposed to it.

There were several large side deals, known as "offset contracts," signed along with the submarine deal, though little is yet known about the details. They would work as follows: Germany provides bailout money to Greece; Greece uses some of the ;money to purchase submarines and other weapons systems from German firms; the German firms would invest part of that money in projects in Greece favored by the Greek government. The money is effectively laundered, and everyone gets to pocket something.

The investigation is spreading to Portugal, according to EU Observer, and is touching on some high-level EU officials.

Greece and Turkey
Greece and Turkey

The deal has some important historical significant for Americans. Greece and Turkey are perennial enemies, and a post-war conflict between them in 1947 led President Harry Truman to declare the Truman Doctrine, which essentially made America the Policemen of the World. (See "President George Bush talks about a 'Third Awakening,' but he has his history wrong" for details on how America became Policemen of the World.)

Since that time, Turkey and Greece went to war on the island of Cyprus, and almost went to war on other occasions. Greece is the largest importer of conventional weapons in all of Europe, and it's thought that much of this weaponry is in preparation for a possible future war with Turkey.

(Comments: For reader comments, questions and discussion, see the 14-Aug-10 News -- Germans selling submarines to Greece and Portugal thread of the Generational Dynamics forum. Comments may be posted anonymously.) (14-Aug-2010) Permanent Link
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13-Aug-10 News -- Greece's economy goes deeper into recession

Worldwide heat prices surge after USDA lowers forecast

Greece's economy goes deeper into recession than forecast

Deep into August, with seemingly half the world on vacation, it almost seems as if nothing is happening. And yet, bills continue to pile up, even in summer, and notes become due, and people still have to eat.

So it's perhaps not too surprising that Greece's economy is turning out to be worse than expected or predicted, after the huge European bailout in May, triggered by Greece's impending financial default. (See "11-May-10 News -- Europe's super-nuclear bailout.")

Greece's economy - growth rate - 2008 to present <font size=-2>(Source: Market Watch)</font>
Greece's economy - growth rate - 2008 to present (Source: Market Watch)

As the graph shows, the growth rate of Greece's economy turned negative in Q3 2008, and it's been negative ever since.

On Thursday, Greece announced the biggest fall in recent times. Experts had predicted that Greece's growth rate would hold steady at around -1.0%, but it now turns out that in Q2, the rate was -1.5%, according to MarketWatch.

What's even worse is the overall trend since Q1 of 2008, which is clearly downward, and there's little hope in sight of a revival.

Notice that the one time when the growth rate increased -- in Q2 of last year -- was the time when the U.S., China, Europe and other countries were pouring trillions of dollars in bailouts and stimulus packages into the global economy, resulting in last year's stock market rally. But Greece's economic growth only last one quarter, not even as long as the stock market rally.

Furthermore, the most recent collapse, in Q2 of this year, coincides with the collapse of many other economic indicators, as I've been describing for two months now, starting with "7-Jun-10 News -- Globally, May was a month of ominous events."

Early in 2009, I was expecting the world economy to keep collapsing, but I turned out to be wrong because of something like $10 trillion dollars in stimulus and bailout money injected into the world economy.

But nothing like that is about to happen now. People around the world are panicked about the high levels of government debt everywhere. Whereas Presidents Bush and Obama were able to get trillion dollar stimuluses and bailouts passed in 2008 and 2009, nothing like that is possible in 2010.

This mood is apparent from a survey of 57 economies published on Thursday in an article in the Wall Street Journal (Access). The economists were generally very pessimistic about the U.S. economy, but nonetheless most said that the economy doesn't need any more fiscal or monetary stimulus.

The economic pessimism was increased even further on Thursday when new claims for unemployment insurance hit their highest level in six months, according to VOA. 484,000 people signed up for unemployment insurance last week, when the experts were hoping that the figure would fall to 400,000.

Generational Dynamics predicts that we're headed for a major worldwide financial crisis, the worst in history, because the world has created an amount of debt astronomically larger than at any time in history.

Additional links

The U.S. Department of Agriculture (USDA) revised downward its global forecast for wheat product, by 2.3% less than July. Much of the downward revision was caused by Russia's drought and the hottest summer in 130 years. Wheat prices surged 2.5% on Thursday, giving rise to fears of food riots. Associated Press.

The North Korean football (soccer) team that lost three games at the World Cup games this summer are being harshly punished by Kim Jong-il's government. World soccer officials will conduct an investigation. LA Times

Floods in Pakistan are still growing, in a disaster of epic proportions. The rains have destroyed 500,000 tonnes of wheat and 500,000 tones of sugar, exacerbating the food shortages. Reuters

The commander of Iraq's military has indicated that U.S. troops should not leave Iraq, since the Iraq army will not be ready to defend the nation until 2020. Long time readers will recall that I've said that it's my expectation that the U.S. will not withdraw from Iraq until forced to by the Clash of Civilizations world war. Associated Press

The spreading revolt in Kashmir is causing India to reevaluate its strategy there, although there seem to be no answers in sight. NY Times

India is joining United Arab Emirates (UAE) and Saudi Arabia in threatening to shut down BlackBerry email and messenger services, unless the vendor, Research in Motion, makes the contents of encrypted messages available to the government. India's deadline is August 31. Reuters

If you take a picture with a smartphone or a digital camera and post it on the internet, then you may be revealing more than you realize about yourself -- specifically your location. These devices use the GPS capability to implant a "geotag" into the picture that an expert can use to determine where the picture was taken. NY Times

Turkey is being accused of using chemical weapons against PKK militants. Spiegel

The Arab League has issued a statement saying that the Palestinians' "right to return" to their land in Israel will be on top of their list of priorities. Eurasia Review

Mexico hopes $270 million in social spending will help end Juarez drug violence. Fat chance. Washington Post

A team of French scientists have finally discovered how to drink champagne properly. Start by pouring it into a tilted glass.

(Comments: For reader comments, questions and discussion, see the 13-Aug-10 News -- Greece's economy goes deeper into recession thread of the Generational Dynamics forum. Comments may be posted anonymously.) (13-Aug-2010) Permanent Link
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12-Aug-10 News -- Wall Street turns pessimistic

World Health Organization says that swine flu pandemic is over

Markets fall as pessimistic mood takes hold

As usual, financial experts on tv on Wednesday looked at one another with puzzled expression and asked, "Why is this happening? There's no news that we didn't already know."

Statements like that, which are very common, never cease to astound me. If you think about the mind frame of the person saying it, he obviously believes that stock prices have absolutely no meaning except the emotional state of the investor based on the news of the day. And these idiots give investment advice to other people!

Wall Street stocks fell roughly 3% on Wednesday. According to the NY Times, stocks fell because, "evidence is mounting that growth abroad is also slowing and may be unable to sustain the fragile rebound here." A major reason for the pessimism, according to the article, is that the Federal Reserved released a report warning that "the pace of the nation's recovery had slowed." In addition, China's economy is cooling, and American exports are faltering.

Thus, "The optimism had pervaded Wall Street only weeks ago has faded quickly. In its place is a growing realization of what many ordinary Americans have been feeling in their bones: this is not the economic recovery the nation had hoped for. Indeed, while the economy is growing again, it is growing too slowly to create many jobs or boost household incomes."

What's becoming clear is that the mood on Wall Street is changing as the effects of the multi-trillion dollar bailouts and stimulus packages wear off.

One interesting aspect of the increasing gloom is that even people making dire predictions are becoming more mainstream, according to an article several days ago in the NY Times. According to the article,

"In many smart-money circles, listening to bears has become fashionable, especially now that doubts remain about the sustainability of the euro zone, concerns grow that the United States may slip back into recession and that even the Chinese growth engine may seize up. But to some, the popularization of extremely dire forecasts suggests that the pendulum may have swung too far.

“Nothing is ridiculous anymore,” said Philippe Jabre, a hedge fund executive in Geneva. “There is no doubt that these days extremely negative research is being tolerated more.”

Mr. Jabre said that most of the research that came his way had a distinctly negative bias and that finding actionable ideas with a positive spin was becoming far more difficult. “These guys are reinforcing a conviction among many who invest in hedge funds that they should remain scared,” he said."

As long-time readers know, I realized in 2002 that we were headed for a new 1930s style Great Depression when I was eating lunch at the mall reading the Boston Globe, and I saw a graph of the Dow Industrials going back to the early 1900s. I took one look at it and said, "Ohmigod, the stock market is going to crash." It was that obvious, just from the graph. (See "Updating the 'real value' of the stock market.")

I was ridiculed for many years, but I must say that I almost never hear any ridicule these days. People are indeed scared, and they're finally willing to listen.

Another issue is the debate between those who are predicting deflation and those who are predicting hyperinflation. It's so obvious that we're in a deflationary spiral that I can only ascribe predictions of hyperinflation to human perversity.

In fact, a recent article in the Wall Street Journal (Access) is entitled "How to Beat Deflation," and provides investment strategies:

Investment strategies for deflation <font face=Arial size=-2>(Source: WSJ)</font>
Investment strategies for deflation (Source: WSJ)

My own recommendation, incidentally, is for everyone but the most sophisticated investors to stay out of the markets completely. Cash is king during a deflationary spiral, you should keep you cash in your mattress, in FDIC-guaranteed bank accounts, and in short-term treasuries.

However, even seeing an article like this in the Wall Street Journal shows how much the mood on Wall Street has changed.

World Health Organization declares that swine flu pandemic is over

Post-pandemic phase <font face=Arial size=-2>(Source: WHO)</font>
Post-pandemic phase (Source: WHO)

The World Health Organization (WHO) has announced that the H1N1 swine flu pandemic has entered the "post-pandemic" period. According to the announcement:

"As we enter the post-pandemic period, this does not mean that the H1N1 virus has gone away. Based on experience with past pandemics, we expect the H1N1 virus to take on the behaviour of a seasonal influenza virus and continue to circulate for some years to come.

In the post-pandemic period, localized outbreaks of different magnitude may show significant levels of H1N1 transmission. This is the situation we are observing right now in New Zealand, and may see elsewhere.

In fact, the actions of health authorities in New Zealand, and also in India, in terms of vigilance, quick detection and treatment, and recommended vaccination, provide a model of how other countries may need to respond in the immediate post-pandemic period.

Globally, the levels and patterns of H1N1 transmission now being seen differ significantly from what was observed during the pandemic. Out-of-season outbreaks are no longer being reported in either the northern or southern hemisphere. Influenza outbreaks, including those primarily caused by the H1N1 virus, show an intensity similar to that seen during seasonal epidemics.

During the pandemic, the H1N1 virus crowded out other influenza viruses to become the dominant virus. This is no longer the case. Many countries are reporting a mix of influenza viruses, again as is typically seen during seasonal epidemics."

However, Dr. Henry Niman of the Recombinomics web site, says that the danger is far from over:

"The pandemic H1N1 is a swine virus that has jumped to humans, which has not happened in a sustained manner since 1918. The similarities between the current strain, and 1918 pandemic H1N1 or seasonal H1N1 in circulation decades ago has led to a reduced infection rate among the elderly.

However, the H1N1 virus can aggressively target those under 65, the demographic for over 90% of the fatalities. These fatal cases are linked to the ability of the virus to target the lower respiratory tract, which has been linked to receptor binding domain changes such as D225G as well as low reactor alterations at positions 157-159. Recently released 2010 sequence has demonstrated that these genetic changes are on the rise, raising concerns for the emergence of a more virulent H1N1 in the upcoming months or years."

The emergence of H1N1 swine flu has nothing to do with generational theory, of course, but I continue to recommend that any household should stock up on enough dried foods, water and medicines to be able to surivive a couple of weeks. This preparation could also help in other circumstances, as the 2005 Katrina hurricane showed.

Additional links

An antibiotic resistant "superbug" bacteria has developed in India, and is spreading around the world. In the US, the superbug is likely to appear first in hospitals. NY Times

World commodity grain prices have risen 70% in the last couple of weeks, after the worst drought in 130 years and wildfires forced Russia to ban wheat exports, at least until the end of the year. The result is that we could see street riots over food in underdeveloped countries, particularly in the Middle East, North Africa, and parts of Europe. Reuters

Israel says that it will stop, with bullets if necessary, any future aid flotilla that tries to break the blockade of Gaza. Jerusalem Post

For many parts of Pakistan, especially the south, the worst of the floods is yet to come, as the nation begins the holy month of Ramadan. CNN

Australia is being overrun by rabbits. Reuters

(Comments: For reader comments, questions and discussion, see the 12-Aug-10 News -- Wall Street turns pessimistic thread of the Generational Dynamics forum. Comments may be posted anonymously.) (12-Aug-2010) Permanent Link
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11-Aug-10 News -- US and Vietnam conduct naval exercises in South China Sea

Nobody wants to use the U.S. one dollar coin

US / Vietnam naval exercises in South China Sea rattle the Chinese

The giant nuclear-powered aircraft carrier USS George Washington has docked in a Vietnamese port in preparation for week-long naval exercises between the two countries. They will focus on non-combatant operations such as sea rescues, according to VOA.

With the U.S. and Vietnam having been at war in the 1970s, no other exercise like this have ever taken place. What's motivated them now is China's increasingly belligerent attitude involving its claim to the entire South China Sea that we reported on several weeks ago. (See "24-Jul-10 News -- US confronts China on South China Sea claims.")

Conflicting claims in the South China Sea.  China claims the entire area bordered by the dotted red line. <font size=-2>(Source: BBC)</font>
Conflicting claims in the South China Sea. China claims the entire area bordered by the dotted red line. (Source: BBC)

As we described in that report, US Secretary of State Hillary Clinton chastised China at an ASEAN meeting for its claims to the islands of the South China Sea, particularly the Paracel Islands and the Spratly Islands. It turns out that the South China Sea issue was on the ASEAN agenda because Vietnam put it there, in order to turn the world spotlight on the issue, and apparently they've succeeded.

China has reacted angrily, and several countries in the region are asking for help from the U.S. in countering China's threats. Among these, the Philippines and Malaysia have laid claim to the Spratlys, and Vietnam has laid claim to the Paracels.

Thus, the United States has been expanding its military relationships with Vietnam, Malaysia and Indonesia, according to Retired US Navy Adm. James A. Lyons, writing for the Washington Times. In particular, Lyons recommends leasing sophisticated military hardware to the Philippines, including a squadron of F-16 fighters and T-30 supersonic trainers.

In response, China has conducted its own military exercises in the South China Sea. And a new article in the Beijing Review details the "Historical and legal evidence [that supposedly] proves China's indisputable sovereignty over the South China Sea."

Generational Dynamics predicts that China and the U.S. will be on opposite sides in the coming Clash of Civilizations world war. Whether it will begin in the South China Sea, or on Taiwan, or in Central Asia or elsewhere cannot be predicted, but the end result is certain.

History of Vietnam

Vietnam's last generational crisis war was the the civil war of the 1960s and 1970s. The war was not fought against the Americans, though the Americans were there, supporting the South Vietnamese. It was fought between the North and the South, and the Americans were irrelevant.

In fact, generational crisis wars between North and South Vietnam have occurred regularly, every 70-90 years, since North and South Vietnam have had different ethnic origins. North Vietnam (Vietnamese Kingdom) was originally populated by ethnic Chinese, while South Vietnam (Champa Kingdom) was populated by Polynesian settlers from Indonesia and Malaysia. These ethnic differences resulted in one crisis war after another over the centuries, whether the Americans were there or not.

Generational crisis wars in 1471 and 1545 finally ended the Champa Kingdom in the south, and also drove out the Chinese Army from the north. However, the country remained partitioned until the Tay-Son rebellion, 1771-1790, the most celebrated military event in Vietnamese history. In its explosive climax in 1789, the Vietnamese troops repelled a much larger Chinese army in a brilliant battle that united the country for the first time.

The generational awakening era that followed the Tay-Son rebellion changed the country enormously. The 1800s were the high point of literary culture in Vietnamese history, and, thanks to the French, Christianity bloomed, with hundreds of thousands of Catholic conversions from Confucianism and Buddhism. That lasted until the next crisis war, the French conquest of Indochina in 1865-1885.

Under the French, the Catholic Church flourished, opening missions, schools and hospitals all over the country.

Vietnam's next Awakening era featured riots and demonstrations directed at the French colonialists, and the rise of Ho Chi Minh. Ho took part in the founding of the French Communist Party in 1920, and formed the Revolutionary Youth League in Vietnam in 1925. Ho led numerous anti-colonial uprisings in the following decades, and during WW II, Ho formed the Viet Minh political / relief organization, for people starving to death thanks to confiscation of goods by the occupying Japanese.

After WW II, Ho Chi Minh led the effort to drive the French from Vietnam, and succeeded with human wave assaults against a large French encampment at Dien Bien Phu in 1954.

With the French gone, Vietnam was once again partitioned into North and South. Ho controlled the North, with support from the Soviet Union and China, and over half a million Catholics migrated from the North to the South. America feared that South Vietnam would also fall under Communist control.

This was the time when America had fought two world wars, and was desperately fearful of a third one on the horizon, this time with the Communists. It was considered essential to stop Communism before it could become too threatening, and so America endeavored to stop Communism from spreading from North to South Vietnam. America began providing advisors in the 1950s, growing to full-scale armed intervention in the 1960s. The North-South crisis civil war finally ended in 1974, with Hanoi's victory, followed by Hanoi's reign of terror.

Today, Vietnam is well into one more generational awakening era. When President Bush visited Vietnam in 2006, the young people of Saigon (they don't call it Ho Chi Minh city) lined the streets and cheered wildy, expressing admiration for America, and also hostility towards their Hanoi masters.

Today, even Hanoi wants to be friends with America, to counter threats from China in the South China Sea.

And so, the cycle of life takes one more click forward. The Vietnamese don't give a shit about us, but we're still policemen of the world, and we will do what we have to do, in the South China Sea and elsewhere.

Additional links

US $1 coin <font size=-2>(Source: BBC)</font>
US $1 coin (Source: BBC)

The U.S. introduced a $1 coin in 2007, but nobody wants to use it, and so there are $1.1 billion of the coins in storage. BBC

Omar Khadr was 15 years old when US forces in Afghanistan captured him and sent him to Guantanamo prison. He may be the youngest person in history ever to be charged with war crimes. Al-Jazeera

President Obama's press secretary Robert Gibbs has infuriated many of his supporters by calling them the "professional left." He said that these people "wouldn’t be satisfied if Dennis Kucinich was president." I wonder why he doesn't just call them nihilistic Generation-Xers? Politico

Japan’s Prime Minister Naoto Kan apologized Tuesday for Japan's colonial rule of Korea. The apology comes as the 100th anniversary of Japan's August 29, 1910, annexation of Korea approaches. The Koreans are pleased with the apology, but say that it doesn't go far enough because it isn't accompanied by a promise of monetary compensation. Xinhua

The U.S. is winning friends in Pakistan with helicopters delivering food and water to stranded victims of the torrential floods. AP

Islamist terrorist groups are also winning friends in Pakistan by providing medicine and helping to rebuild homes. Reuters

(Comments: For reader comments, questions and discussion, see the 11-Aug-10 News -- US and Vietnam conduct naval exercises in South China Sea thread of the Generational Dynamics forum. Comments may be posted anonymously.) (11-Aug-2010) Permanent Link
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10-Aug-10 News -- North Korea fires artillery shells into Yellow Sea

A generational analysis of Kashmir

North Korea fires artillery shells into Yellow Sea

Yellow Sea and Sea of Japan -- called East Sea and West Sea, respectively, by Korea. NLL = Northern Limit Line - the line defining North Korea's territorial waters
Yellow Sea and Sea of Japan -- called East Sea and West Sea, respectively, by Korea. NLL = Northern Limit Line - the line defining North Korea's territorial waters

Acting like petulant teenagers on Monday, the North Koreans fired 130 rounds of artillery into the Yellow Sea, according to Yonhap.

Most of the artillery shells landed in the North Korean side of the Northern Limit Line (NLL), the line defining North Korea's territorial waters. However, some of them splashed into the water south of the NLL.

At America's State Department press briefing on Monday, assistant secretary Philip J. Crowley said that animal rights activists should be complaining about the fish that were killed:

"QUESTION: On North Korea. The U.S. has been urging the North Koreans to stop further provocation, but today, North Korean military fired more than a hundred rounds of artillery into borders (inaudible) – border of South Korea. So I can I ask a reaction to this particular incident?

MR. CROWLEY: I’m sure it resulted in a lot of dead fish and we certainly hope that PETA will protest. It is not a helpful sign by North Korea and this is exactly the kind of behavior we would like to see North Korea avoid.

QUESTION: But just to continue on North Korea. I mean, since they – you passed your UN Security Council resolutions warning against further provocation, I mean, they seem to be doing a host of things. I mean, the shipping boat was just the other day was just one. Then there are continued little small skirmishes that we’ve seen. I mean, is there a concern that there is going to be continued provocation by North Korea, one of which might not just be left to joke about later?

MR. CROWLEY: Again, based on – if past is prologue, are we likely to see more provocations? Regrettably, the answer is we’re likely to see more provocations. All we can continue to communicate to North Korea is that there will be no reward for these provocations. North Korea will continue to be isolated. We’ll continue to work with the international community to fully implement Resolution 1874, and we will continue to find ways as we’ve talked about to put pressure on the North Korean Government to change course. As to what North Korea will do, my crystal ball is not that effective.

QUESTION: P.J., I presume that your initial comments there were a bit tongue – you were trying to be tongue and cheek, yes? I just want to make sure that – you’re not suggesting that the only thing that needs to be protested here is the death of a bunch of fish.


QUESTION: I mean, you want PETA to protest this? Are you willing to protest it as a provocation?

MR. CROWLEY: Well, we have –

QUESTION: With (inaudible) intention to be –

MR. CROWLEY: We have made our views known to North Korea directly and repeatedly. We want to see North Korea cease its provocative actions. We want to see North Korea find a way to work constructively with its neighbors. We want to see North Korea reduce tensions. The fact that they have sunk a North Korean ship[i], we are aware that they have taken a fishing vessel in the high seas. It’s unclear the specific circumstances; South Korea is investigating that incident. But certainly the firing of a very large number of rounds in the region is the last thing that we want to see and is certainly not the best way to reduce tensions.

It’s unclear to us exactly what North Korea feels it is trying to achieve through this ongoing chest thumping that it has engaged in. All we can say is that we will continue to work effectively and closely with South Korea, other countries in the region, and there will be no reward for North Korea, for these provocations."

As you can see, the questioner was not impressed by Crowley's little joke about dead fish and the animal rights organization PETA.

However, the entire interchange indicates how directionless the policy towards North Korea is. This is because no direction is possible.

The North Koreans seem to be attempting to provoke a war. The North Koreans are going through a succession crisis, as President Kim Jong-il is old and frail. The North Koreans have a million man army ready to march south into Seoul, and they undoubtedly fantasize uniting North and South Korea until their control.

If the North Koreans are intent on provoking a war, there's little that the South or the Americans can do about it, except continuing with things like the naval exercises as a show of force, so that the North Koreans will understand that winning a war will not be as easy as their fantasies tell them.

The South Koreas are still furious about the sinking of the Cheonan, killing 46, and they're undoubtedly also furious that the North seems to have gotten away with it.

Thus, tensions are still great on both sides, and are probably growing. Both sides are pushing the limits of provocation, and if one side or the other takes a step too far, the result would be a major war.

Mia Farrow contradicts Naomi Campbell in war crimes trial

The prosecution of former Liberian president Charles Taylor on charges of aiding the rebels in the Sierra Leone crisis civil war in the 1990s continues to hinge on the question of whether Charles Taylor gave supermodel Naomi Campbell a diamond at a 1997 dinner for Nelson Mandela. For, if he did, it would indicate that it was a "blood diamond" that Taylor had obtained from the rebels for large sums of money and weapons.

Several days ago, we reported that Naomi Campbell testified that she did receive some "dirty pebbles" from two men who knocked on her door in the middle of the night, but she didn't bother to ask who they were from because "I get gifts all the time: sometimes in the middle of the night without knowing who they are from. It is quite normal for me."

Mia Farrow in court <font size=-2>(Source: LA Times)</font>
Mia Farrow in court (Source: LA Times)

Actress Mia Farrow had also been at the 1997 Mandela event, and her court testimony on Monday contradicted Campbell. The LA Times quotes Farrow as saying that she spoke to Campbell the next morning and, "She said in the night she had been awakened by men knocking at her door and they had been sent to her by Charles Taylor, and they had given her a huge diamond," Farrow said, adding that Campbell had been "quite excited" about it.

Naomi Campbell nuzzles Nelson Mandela in 1997 <font size=-2>(Source: Telegraph)</font>
Naomi Campbell nuzzles Nelson Mandela in 1997 (Source: Telegraph)

Meanwhile, the Telegraph has published the above 1997 photo of Naomi Campbell nuzzling Nelson Mandela.

So it remains to be seen how much bearing all this supermodel testimony will have on whether Charles Taylor is convicted. He is charged with 11 counts of instigating murder, rape, mutilation, sexual slavery and conscription of child soldiers during wars in Liberia and Sierra Leone in which more than 250,000 people were killed. He denies all the charges.

Generational analysis of Kashmir

An expert analysis of the situation in Kashmir, published by Eurasia Review, has a generational flavor.

The analysis by Mohammad Ashraf begins as follows:

"In the 63 years of Kashmir’s association with India, there have been many agitations and upheavals. However, the scale, the sentiment, the emotions, and the total involvement of the population seen at present are unprecedented. A strange frenzy seems to have overtaken the entire population, be it the young children, the teenagers, the women, and the elders. They are absolutely fearless of the armed soldiers and are facing bullets with their bare chests. The State Government has ceased to exist for all practical purposes. The Central Government is confused and paralyzed. They have absolutely no idea as to how the fire in Kashmir can be doused. On the contrary, instead of cooling tempers they are adding fuel to the fire by sending more troops. Kashmir is already known as the most militarised area of the world."

From the point of view of Generational Dynamics, the young people that this paragraph talks about are in the "Hero" archetype, just like America's World War II GI generation, and just like today's Millennial generation (Generation Y).

Kids in Hero archetype generations start out as a generation in waiting -- waiting for the day when they'll go without hesitation to save the society and its way of life from the enemy, whoever that may be.

Additional links

Death rates in Moscow have nearly doubled to 700 per day, compared to a normal 380 per day. City morgues are dangerously close to filling up, as the smog from the wildfires is unabated. Moscow News

German authorities have permanently shut down the Taiba Mosque in Hamburg. The September 11 suicide pilot Mohammed Attah had attended the mosque, and had used his contacts there to plot the 9/11 attacks. Deutsche Welle

Torrential rains continued to make the Pakistan floods even worse. The apparent incompetence of the government in handling the emergency has further damaged its stature, and given increased stature to the army. McClatchy

Two Demcratic Congressman are going to hold up $100 million in aid to Lebanon's army that had previously been approved. The aid was blocked after the recent deadly border clash between Lebanon and Israel. Telegraph

The U.S. is not only conducting naval exercises with the South Koreans, but it's also doing so with the Vietnamese. A U.S. warship will dock in Vietnam on Tuesday as part of week long naval exercises. The exercises will take place in the South China Sea, and will be sure to anger the Chinese. Bloomberg

(Comments: For reader comments, questions and discussion, see the 10-Aug-10 News -- North Korea fires artillery shells into Yellow Sea thread of the Generational Dynamics forum. Comments may be posted anonymously.) (10-Aug-2010) Permanent Link
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9-Aug-10 News -- N. Korea seizes S. Korean fishing boat

Wildfires in Russia are infuriating the public

North Korea seizes S. Korean fishing boat in retaliation for naval exercises

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 has seized a 41-ton South Korean fishing boat, the "Daeseung 55." The boat was in the Sea of Japan near the border between North Korea and Russia, and may (or may not) have accidentally entered North Korean territorial waters.

The South Korean maritime authorities had regular contact with the ship until around 5:30 am on Sunday morning, according to the Korea Times. At that point the signal was lost, and it was confirmed via satellite phone call that the boat was being towed by a North Korean patrol boat to a North Korean port.

The seizure appears to be in retaliation for naval exercises being conducted in the Yellow Sea by South Korea, involving 4,500 men and all four branches of the military. The CS Monitor reports that the South Korean vessels conducted nighttime live-fire antisubmarine exercises in the same general area where a South Korean warship, the Cheonan, was sunk on March 26, killing 46. An international forensic team concluded that a North Korean torpedo had sunk the Cheonan. In the exercises, South Korean vessels, supported by warplanes, began firing on targets in the Yellow Sea at sundown and were expected to keep up the exercises for the next six or seven hours.

North Korea had claimed that the drills amounted to an "undisguised military intrusion." CNN quotes North Korea's state-run news agency as saying:

"The army and people of the DPRK [North Korea] are closely watching every move of [South Korean President] Lee Myung-bak's group of traitors. And if the puppet warmongers dare ignite a war, they will mercilessly destroy the provokers and their stronghold by mobilizing most powerful war tactics and offensive means beyond imagination."

In case you don't know, the word "puppet" refers to the claim that the South Koreans are puppets of the United States.

There were seven crew members of the fishing boat, four Koreans and three Chinese. Having the Chinese on board will pose some issues for the North Koreans, because they wouldn't want to keep hostages from their ally. However, the fate of the four South Korean crew members will certainly be in doubt.

Joint U.S. - South Korean naval exercises took place a couple of weeks, and there are plans for several additional rounds of exercises by the end of the year. All of these exercises are in reaction to the sinking of the Cheonan, but the North Koreans and the Chinese are bitterly opposed to them.

The current exercises by the South Koreans alone are taking place in the Yellow Sea, over the objections of the Chinese. Different news stories seem to make different statements as to whether any of the joint US/S.Korean exercises will take place in the Yellow Sea. Some stories indicate that Yellow Sea exercises will take place in September, while other news stories indicate that the U.S. has decided against Yellow Sea exercises to avoid provoking the Chinese.

Wildfires in Russia infuriate the people

The wildfires in Russia continue to burn.

There are 500 fires burning across Russia, about 50 of them on the outskirts of Moscow. Muscovites are warned to stay indoors because of the heavy smog, and if they do go outdoors, they choke on the smog and can't see more than a few feet in front of them.

The fires are having an effect on internal politics. Russians are furious at Moscow for being so poorly prepared for this wildfire epidemic, according to Spiegel.

But it goes beyond just feelings of frustration. In 2007, then-president Vladimir Putin dismantled Russia's forestry service, replacing it with a high-tech system based on satellites. Unfortunately, the new high-tech system is incapable of detecting small files, according to a summary of analyses by Russian experts published by Eurasia Review. One normally doesn't fire firemen during a fire, but things are so bad that BBC reports that President Dmitry Medvedev is sacking top military officers over Russia's fire failures.

We're seeing the same kinds of things in Russia that we've seen in America since the Gulf oil disaster and in Pakistan since the floods -- A population increasingly furious at the incompetence of the government. With all three countries in generational Crisis eras, we can expect the three populations to become more nationalistic and xenophobic, though it remains to be seen how these behavioral changes will manifest themselves.

Additional links

More than 57 young men, mainly in their teens, were in Indian-controlled Kashmir's hospitals in the last week, after they'd been fired upon by security forces. Separatist leaders warn that the Indians are creating a new generation of angry teenage militants dedicated to confrontation with the Indian security forces. Telegraph

The same monsoon rains that are flooding Pakistan are also flooding parts of Indian-controlled Kashmir. Thousands of people have been forced to leave their homes to flee to higher ground, and sleep in open air. al-Jazeera

The Juarez drug cartel appears to be losing ground to the Sinaloa drug cartel in Juarez, Mexico. In desperation, the leaders of the Juarez drug cartel are committing acts with the objective of drawing U.S. government forces into the Juarez conflict, in the belief that the U.S. will attack the Sinaloa cartel. However, the U.S. shows no inclination to get involved in Juarez, and the Mexican government would oppose U.S. intervention. Stratfor

Trade between North and South Korea has fallen 30% since the South cut almost all business relations with the North after an international investigation found Pyongyang torpedoed one of its naval ships in late March, the customs office here said yesterday. JoongAng

Women buy sexier clothes on days when they are most fertile. Toronto Sun

(Comments: For reader comments, questions and discussion, see the 9-Aug-10 News -- N. Korea seizes S. Korean fishing boat thread of the Generational Dynamics forum. Comments may be posted anonymously.) =eod

(9-Aug-2010) Permanent Link
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8-Aug-10 News -- Pakistan appeals for international help with floods

Pakistan's president faces scandal over his absence during floods

Floods continue to spread and devastate Pakistan

Pakistan: Torrential rains worsen floods <font size=-2>(Source: Dawn)</font>
Pakistan: Torrential rains worsen floods (Source: Dawn)

Torrential rains continued to pour down on Pakistan, worsening an already catastrophic situation, according to Dawn.

The Indus river, which runs down the middle of Pakistan from top to bottom, almost for the entire length of the country, has been overflowing its banks, submerging villages for miles on either side. The powerful, gushing streams of water have been breaking dykes, killing thousands of people, and forcing several million to people to flee their homes and seek shelter elsewhere.

Prime Minister Yousuf Raza Gilani has appealed to the international community for help with the floods, according to Dawn.

"Pakistan has been hit by the worst flood in its history. While still struggling to cope with the negative impact of the situation on our western borders and the crisis of internally-displaced persons, we have yet again been hit by a natural disaster," said Gilani.

"The loss of human lives and infrastructure is colossal. Real assessment of the damage can only be done once the water recedes. I would take this opportunity to appeal to the overseas Pakistanis to extend support to their countrymen in coping with the losses and sufferings. I also urge the corporate sector of Pakistan to come forward and shoulder its social responsibility and generously support the victims of the disastrous flood," he said.

Growing scandal over President Zardari's absence

Crowds heckled him and a protestor threw shoes at Pakistan's President Asif Ali Zardari during a speech in Britain on Saturday, according to the Telegraph. Throwing shoes is a form of insult among Muslims, and the incident was reminiscent of an incident several years ago where an Iraqi journalist threw shoes at President George Bush.

Zardari is in Britain on a visit that was scheduled some time ago. People in Pakistan are wondering why the President of the country didn't cut his visit short and return to Pakistan to comfort the millions of people victimized by the floods.

Zardari already had low popularity ratings before, and this scandal is pushing them even lower.

(Comments: For reader comments, questions and discussion, see the 8-Aug-10 News -- Pakistan appeals for international help with floods thread of the Generational Dynamics forum. Comments may be posted anonymously.) (8-Aug-2010) Permanent Link
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7-Aug-10 News -- Financial experts freaked on jobs report

Devastating Pakistan floods worsen with new rains

Jobs report reflects continued downward trend in economy

Jobs report for July <font size=-2>(Source: Bloomberg TV)</font>
Jobs report for July (Source: Bloomberg TV)

Friday's jobs report was much worse than financial experts had expected.

The top graph shows that 131,000 jobs were lost in June. A lot of these were expected, since it was the end of the time when hundreds of thousands of temporary government employees were out interviewing people for the census.

The real focus was on the non-government payrolls, shown in the second graph, and there were two shocks here. First, the growth in private payrolls was 71,000, lower than the 90,000-100,000 that experts had predicted, according to Reuters.

And second, there May and June figures were adjusted downward by 97,000 from where they stood a month ago. That is, 97,000 fewer jobs had been created in May and June than had previously been reported.

The reason that all this is shocking is because the trend is in the wrong direction. The Pollyannaish theories all depend on jobs creation to be surging. If job creation falls at all, especially by these large numbers, it freaks the experts out.

A number of pundits on TV on Friday mentioned temp hiring, and this was another disconcerting figure. As shown on the bottom graph, which shows temp hiring by the private sector (hence does not include the temporary census workers), shows that temp hiring fell by 6000.

The reason that this is important is because the Pollyannaish theories all assume that temp hiring will increase for a while, as businesses "test the waters" in the growing economy, and that these temp workers will be converted to permanent workers when the economic growth seems solid. Thus, the earlier rises in temp hiring were considered to be good news. The fall in temp hiring in July might have been considered good news if it had been accompanied by growth in permanent employment. But since permanent job growth was so anemic, it simply meant that businesses were hiring a lot less than expected, and were not confident about the future.

It's time, once again, for me to quote this passage from John Kenneth Galbraith's 1954 book The Great Crash - 1929, as I have several times in the past:

"A common feature of all these earlier troubles [previous panics] was that having happened they were over. The worst was reasonably recognizable as such. The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune."

This is exactly what's happening again. All the experts on TV say things like, "In every postwar recession, yada, yada, yada." The problem is that this isn't like any postwar recession. The only comparable "recession" is the one that occurred after the 1929 crash.

In every postwar recession, jobs came back quickly. In this recession, jobs are coming back slowly, if at all.

But this also explains why Generational Dynamics works. Nobody remembers the 1930s depression any more, and so they consider it to be something from the age of dinosaurs that can't even exist any more.

An analogy for the Law of Mean Reversion

A couple of days ago I tried to explain why the Law of Mean Reversion works. (See "Updating the 'real value' of the stock market.")

S&P 500 Price/Earnings Ratio (P/E1) 1871 to August 2010
S&P 500 Price/Earnings Ratio (P/E1) 1871 to August 2010

The problem is to explain why, if the S&P 500 price/earnings ratio has been way above the historical average since 1995, then it has to be way below average for a similar time into the future -- i.e., until 2025.

The explanation I'm looking for is to compare the huge debt bubble of the last few years with a poison that affects every part of the economy. The poison is the debt that people and businesses take on during the bubble, and then it takes them many, many years to pay off the debt.

I asked an online correspondent if he could think of a kind of human poisoning that works something like that. He suggested lead poisoning. If you're exposed to lead, then it builds up in your body tissues. Once the problem has been identified, it's necessary to take various medicines for a while to get rid of the lead.

But then I heard a woman on TV say the following: "I always say it too me nine months to have a baby and two years to lose the weight."

Now there's a great analogy. If you're a woman and you get pregnant, then you can (hopefully) enjoy the pregnancy for nine months. But once the little bundle of joy has been delivered, then it may take you years to lose the weight that you gained.

So there you have two different analogies you can think of, to help you understand why the Law of Mean Reversion works, and why it's a mathematical certainty that the stock market is going to have to fall very far, and stay down there for many years.

Increasing debt of US companies

Part of the Pollyannaish view that the economy is improving is the assumption that the 2007 financial crisis is over and all the debt has been removed from company books. However, the poison analogy that I described above says otherwise -- that it will take a long time to remove the poison of debt from businesses.

Here's how Brett Arends, a columnist on Market Watch, described what's going on:

"You may have heard recently that U.S. companies have emerged from the financial crisis in robust health, that they've paid down their debts, rebuilt their balance sheets and are sitting on growing piles of cash they are ready to invest in the economy.

You could hear this great news pretty much anywhere -- maybe from Bloomberg, which this spring hailed the "surprising strength" of corporate balance sheets. Or perhaps in the Washington Post, where Fareed Zakaria reported that top companies "have accumulated an astonishing $1.8 trillion of cash," leaving them in the best shape, by some measures, "in almost half a century."

Or you heard it from Dallas Federal Reserve President Richard Fisher, who recently said companies were "hoarding cash" but were afraid to start investing. Or on CNBC, where experts have been debating what these corporations are going to do with all their surplus loot. Will they raise dividends? Buy back shares? Launch a new wave of mergers and acquisitions?

It all sounds wonderful for investors and the U.S. economy. There's just one problem: It's a crock."

The problem is that US companies have not been DECREASING their debt levels; they've been INCREASING them since the 2007 credit crunch:

Ratio of debt to net work for US corporations <font size=-2>(Source: Market Watch)</font>
Ratio of debt to net work for US corporations (Source: Market Watch)

Arends calls this situation the "biggest lie about US companies." The Pollyannaish "experts" on tv tell you that the companies have tons of cash sitting on the sidelines, waiting to move into the market, and cause the stock market bubble to grow again.

What this graph shows is that it's completely untrue. US companies must be in a great deal of trouble, because they keep going deeper and deeper into debt. This is just like a consumer who's buried in credit card debt, borrowing more money on another credit card to make payments on the other debt. Sooner or later it all collapses -- for the consumers and the businesses.

This goes back to the poison analogy that I've been describing. The poison of debt has built up in the body tissues of the entire economy, and it will take many, many years for the poison of debt to be removed.

From the point of view of Generational Dynamics, the financial crisis that started in 2007 has barely begun, and we're headed for a truly major financial crisis of historic proportions. This is an absolute certainty.

Additional links

The devastating floods in Pakistan, already the worst in 80 years, are growing worse, as more heavy rain is expected in the next two days, causing hundreds of thousands more people to leave their homes. As the floods spread, power plants are being threatened. Dawn

As the floods continue to spread in Pakistan into the country's agricultural breadbasket, aid is pouring in from the United States. At the same time, militant Islamist groups are providing volunteers around the country, and are operating medical camps. CS Monitor

Fires continue to spread in Russia and choke Moscow, resulting in intense anger at the government for allowing it to happen. Global Post

A Japanese tanker carrying 270,000 tonnes of oil through the Strait of Hormuz suffered an explosion on July 28, but then made it to port. The UAE Coast Guard has now confirmed that the explosion was a terror attack on the vessel, inflicted by a boat loaded with explosives. An al-Qaeda linked group called the Abdullah Azzam Brigades has claimed responsibility. The National (UAE)

In Indonesia, which has the world's largest number of Muslims, there are 1.2 million of the faithful now on a government waiting list to make the trip to Mecca. These people are required to deposit money with the government to get onto the waiting list, but now it turns out that government officials and politicians have been misusing the money to fatten their own pockets. NY Times

The Chinese government is concerned because young people in China are increasingly unable to write in Chinese characters, because of computers. When typing on a computer, a Chinese can type out the beginning of the word in pinyin, the Romanized version of Mandarin, and the computer software will translate the pinyin into the appropriate Chinese character. Asia Times

Coming soon is the 100th anniversary of Japan's August 29, 1910, annexation of Korea, which the Japanese occupied until World War II ended in 1945. Recent polls show that Koreans are still bitter about the brutal treatment of the Koreans by the Japanese. Asia Times

Anti-nuclear activists in Pakistan are questioning the help that Pakistan is getting from China in constructing nuclear reactors, claiming that they only make Pakistan more vulnerable. Memri

The 42 year old Julia Roberts has disclosed that she is a practicing Hindu. She goes with her husband to temple to "chant and pray and celebrate." Telegraph

(Comments: For reader comments, questions and discussion, see the 7-Aug-10 News -- Financial experts freaked on jobs report thread of the Generational Dynamics forum. Comments may be posted anonymously.) (7-Aug-2010) Permanent Link
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6-Aug-10 News -- Wheat prices climb after Russia announces export ban

Many Americans in the UK are renouncing US citizenship

Wheat prices climb as Russian wild fires become a national disaster

Wheat prices on the Chicago board of Trade rose the maximum amount permitted in a single day on Thursday to $7.85 per bushel, according to Reuters. Prices have risen 82% since June 9, when a bushel of wheat was priced at $4.25.

Thursday's price surge was sparked by Russia's decision to freeze all wheat exports at least until the end of the year. In addition, Moscow has requested that former Soviet states Kazakhstan and Belarus also freeze their wheat exports, according to Ria Novosti. Russia is the world's third largest exporter of wheat.

These decisions were made as Russia is suffering the worst heat wave and drought since records began 130 years go. The result of the drought is that the 2010 grain forecast has been cut to 70 million tons from 90 million tons.

A grain field burns in Russia <font size=-2>(Source: Moscow Times)</font>
A grain field burns in Russia (Source: Moscow Times)

The drought has destroyed one-fifth of Russia's wheat crop, and now wildfires are finishing off some of the fields that remained.

Moscow is engulfed in smog, thanks to hundreds of wild fires that are out of control, burning villages to the ground. Like the floods in Pakistan that we described yesterday, Russia's fires are achieving geopolitical significance, as can be seen from the freezing of exports.

In 2008, wheat prices rose to $13 per bushel, causing enormous hardship in poor regions. Wheat prices are lower than that amount today, but they're still rising.

The juiciest story of the day -- Naomi Campbell testifies

Naomi Campbell in court <font size=-2>(Source: Telegraph)</font>
Naomi Campbell in court (Source: Telegraph)

The juiciest international news on Thursday is that supermodel Naomi Campbell testified at the war crimes trial of former president of Liberia Charles Taylor, who is accused of supporting the Sierra Leone crisis civil war in the late 1990s, despite the fact that Taylor wasn't even in Sierra Leone. He's accused of purchasing "blood diamonds" from the Sierra Leone rebel force, who had perpetrated widespread atrocities, in order to give them money to buy weapons.

Naomi Campbell was subpoenaed to testify because she had attended a dinner for Nelson Mandela at which Taylor was present. According to the charges, she flirted and exchanged phone numbers with Taylor, who reciprocated by having two men knock on her door in the middle of the night and give her a pouch of "dirty diamonds" (meaning that the diamonds were covered with actual dirt, as if they had just come out of a mine).

Campbell denied that she had flirted with Taylor, and she stated further that she hadn't known that the diamonds were from Taylor, until another guest, Mia Farrow, told her that they might be from him.

According to her testimony, quoted by the Independent, she has never heard of Liberia, and: "It is not abnormal for me to get gifts," she told the court. When she was asked why she didn't the two men where the diamonds came from, she said, "I get gifts all the time: sometimes in the middle of the night without knowing who they are from. It is quite normal for me."

This drama hasn't ended, since Mia Farrow will be testifying next week, and she's expected to contradict Campbell's testimony, according to the Independent.

From the point of view of Generational Dynamics, the Sierra Leone civil war was obviously a generational crisis war of the most genocidal kind, and it's highly doubtful that Charles Taylor could have had any substantial influence on the progress of the war. A generational crisis war, especially one this vicious, is a force of nature, and politicians have little or any control over it.

Additional links

Many Americans living in the UK are turning in their passports and renouncing US citizenship, in order to avoid paying US taxes. Financial Times (Access)

Here's an oddball story. Apparently, financial firms using programmed (computerized) trading programs are sending thousands of orders a second through electronic stock exchanges, with no intent to actually complete trades. The orders have no apparent purpose. Speaking as a software developer myself, I would guess that they're test patterns being used to stress test computers programs, in preparation for the day when they have to get orders through during a panic or crash. Atlantic

The Library of Congress is setting up a national organization for the preservation of digital objects, the National Digital Stewardship Alliance. Fierce Government IT

Iran claims to have tricked Russia by obtaining Russian-made long-range S-300 surface-to-air missiles from Belarus and other sources, after Russia had indefinitely delayed filling a 2007 contract for them. The U.S. had objected to the contract because of the missiles' long-range capabilities. Associated Press

Many Arabs supported Adolf Hitler during WW II, since at that time they were living under British or French occupation. A Saudi columnist is condemning the sympathy that Arabs feel today for Hitler. Memri

Yesterday we reported an item that Iran's president Mahmoud Ahmadinejad was denying an early report that an assassination attempt had been made on him, using an explosive device that was hurled at him. It now appears that an assassination attempt did take place, and at the same time, a huge explosion occurred at a large petrochemicals complex, destroying large sections of the complex. Iran is playing down the simultaneous attacks. Debka

More than a million BlackBerry users in Saudi Arabia will lose messaging services on Saturday, when the Saudis cut off the service. The Saudis have demanded that Research in Motion, the BlackBerry vendor, give them the codes so that they can monitor encrypted messages. The UAE has already announced a similar ban to begin October 11. The question that's going through my mind is this: Does all this mean that users of iPhone and other hand-held devices DO have their messages monitored? The National (UAE)

In an interview with Palestinian Authority president Maymoud Abbas, he revealed that a recent Arab summit discussed plans for war with Israel. Memri

China's government is taking step to stop people from speaking in the Cantonese dialog of Mandarin, the Chinese language. There are some 50 million Cantonese speakers. Asia Times

In Greece, the rate of suicides has doubled or tripled in the last year, as one of the effects of the financial crisis. Kathimerini

Drug cartels are so powerful in Mexco's Nuevo Laredo that they completely control al the news coverage. Washington Post

A very interesting history of U.S. - Mexican relations, dating back before the Mexican-American war, and how they influence today's immigration issues. Stratfor

Japan is commemorating the 65th anniversary of the nuclear bombing of Hiroshima that brought about the end of World War II. VOA

(Comments: For reader comments, questions and discussion, see the 6-Aug-10 News -- Wheat prices climb after Russia announces export ban thread of the Generational Dynamics forum. Comments may be posted anonymously.) (6-Aug-2010) Permanent Link
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5-Aug-10 News -- Multiple crises overwhelm Pakistan

In Turkey, a confrontation between the government and the army is building

Anti-Taliban hero killed by suicide bomber in Peshawar, Pakistan

Sifwat Ghayoor, the police chief who has been leading the jawans (troops) fighting the Taliban terrorists, was killed by a suicide bomber on Wednesday, along with three bodyguards, according to Dawn. The attack took place in Peshawar, in Pakistan's Khyber Pakhtoonkhwa province. This is the new name of the former North-West Frontier Province.

Ghayoor was a hero, according to the Daily Times. The article quotes him as saying, "An officer has to lead from the front," when asked to protect himself more. "If I do not go to spots (after terrorist attacks) my jawans will get demoralised and this is precisely what I don’t want to happen." According to the article, "Such brave men are far and few between. He is no longer with his family, friends and well-wishers. But he will live in everyone’s hearts and minds as long as Pakistanis continue to sacrifice their lives for their country."

Millions of people in Pakistan displaced by floods

I've only briefly mentioned the floods in Pakistan before now, but now it's becoming increasingly apparent that they'll have geopolitical importance, as illustrated by the above suicide attack.

Entire villages were flattened and washed away by the Pakistan floods <font size=-2>(Source: BBC)</font>
Entire villages were flattened and washed away by the Pakistan floods (Source: BBC)

This is the worst flood that Pakistan has seen since 1929 (before the country even existed as a country). Hundreds of villages have been flattened and washed away, according to the BBC.

Almost the entire Indus River valley has been flooded, destroying most bridges <font size=-2>(Source: BBC)</font>
Almost the entire Indus River valley has been flooded, destroying most bridges (Source: BBC)

America's Katrina floods in 2005 affected New Orleans and surrounding areas, but this flood has literally affected most of Pakistan. As you can see from the above map, the flooding has wiped out villages from the top of Pakistan to the bottom, along the Indus River. Millions of people have lost their homes. The rain is continuing, and is not expected to let up until the weekend.

"All the major roads, bridges have been destroyed and so are the police stations, administration buildings, telephone exchange. Thousands of houses have been razed to the ground by the storm and at least one million people have been homeless," according to an official quoted by the Hindustani Times.

The result is an opportunity for militants. One official is quoted as saying, "Militant commander Mullah Fazlullah [leader of TTP = Tehreek-e Taliban Pakistan, or Pakistani Taliban] has announced a Taliban rebound plan in the Swat valley through a video message and now the whole area is inundated with storms, limiting the movement of the military and wiping out all the infrastructure."

Opportunities for the Taliban

Fazlullah's announcement shows indicates that the Taliban expect to take full advantage of the situation, while Pakistan's army is overwhelmed, attempting to save lives and provide shelter, food and clothing for the survivors.

According to an analysis in the Asia Times, all operations by the army against militants have been put on hold, giving the Taliban and other terrorist groups much more freedom. Furthermore the with all main bridges collapsed in some regions, the situation could be affected for a year.

The floods have also severely affected the flow of supplies to Nato forces in Afghanistan. Normally, these supplies arrive in port in Karachi, and travel by truck through the Khyber Pass in the tribal areas to Afghanistan, but many of these roads are closed now.

Violence continues in Karachi, with an al-Qaeda connection

We've been reporting on the violence in Karachi, and it continued on Wednesday when unidentified attackers hurled a grenade at a Karachi mosque during evening prayers, according to Reuters.

The original violence was triggered by the assassination of Raza Haider, a Shia Muslim and leader of the MQM political party. According to the Daily Times, The Karachi Police are investigating the role of TTP (Tehreek-e Taliban Pakistan, or Pakistani Taliban) in the assassination. According to the article, the assassination was masterminded by an anti-Shia terror group affiliated with TTP, who are Sunnis and ethnically Pashtun.

There is an interesting historical analysis of the city of Karachi in the Asia Times. According to the article, Karachi was largely a business-oriented city, a cosmopolitan home to many ethnic groups.

The first fault line emerged after the Soviet Union's invasion of Afghanistan in 1979, according to the article. Karachi became one of the biggest refugee camps for Afghans fleeing the war. This provided a big boost for religious organizations and in 1983 the first large-scale Shia-Sunni riots broke out. This also occurred near the end of a generational Awakening era, a typical time for this kind of riot to occur, but then to fizzle quickly.

9/11 changed the allegiances of some of the groups that had originally favored the U.S. According to the article, all jihadi organizations and Pashtuns are in one camp. They are lined up against the MQM, the Sunni Tehrik (an anti-Taliban Sunni group), and all Shia groups. It's a highly explosive situation.

According to the article, al-Qaeda's strategy in Pakistan all along is to set up "war centers" all across Pakistan, in order to force the army to spread itself too thin. Thus, I would assume that al-Qaeda leaders are thanking Allah tonight for the massive floods, as they allow al-Qaeda and the Taliban to pursue their strategy.

Additional links

In Turkey, a confrontation is building between the pro-Islam government of president Prime Minister Recep Tayyip Erdogan and Turkey's secular army, which is accused of a coup plot, polarizing the country. Eurasia Net

The danger in withdrawing US troops from Iraq was never a civil war, as many pundits claimed, but influence and/or invasions from neighboring countries -- Turkey, Syria, Iran, Saudi Arabia, Kuwait. Already, the 5-month-old effort to form a new government in Iraq has become snarled in the battle for influence, with rival nations lining up behind the factions and political leaders shuttling among neighboring capitals for talks with their patrons. LA Times

There were reports on Wednesday morning that Iran's president Mahmoud Ahmadinejad had been the target of an assassination attack by a homemade explosive device, but officials later denied this and said that the sound was a firecracker welcoming Ahmadinejad. NY Times

(Comments: For reader comments, questions and discussion, see the 5-Aug-10 News -- Multiple crises overwhelm Pakistan thread of the Generational Dynamics forum. Comments may be posted anonymously.) (5-Aug-2010) Permanent Link
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4-Aug-10 News -- Kashmir violence spirals upward

China's real estate bubble appears to be bursting

Kashmir violence may be spiraling out of control

Five more people were killed on Monday, when government forces fired on protestors, totaling 43 deaths since June 11, according to the Kashmir Observer. A government-ordered curfew is being ignored, as thousands of protestors are filling the streets, according to the article.

The violence appears to be spiraling out of control, with even Kashmiri separatist leaders appealing for calm, according to Reuters.

Kashmir is at the heart of the disagreements between Pakistan and India, and the site of the bloodiest part of the war between Muslims and Hindus that followed Partition, the 1947 partitioning of the Indian subcontinent into India and Pakistan. Generational Dynamics predicts that this war will be re-fought soon.

Past uprisings in Kashmir have appeared to be spiraling out of control, but they settled down after a few days. However, as India and Kashmir go deeper into a generational Crisis era, it becomes increasingly likely that an uncontrolled riot will spread to a larger war.

Rioting kills dozens in Karachi, Pakistan

The number of those killed in rioting in Karachi, Pakistan, and Sindh province rose to 53 on Tuesday, as gunmen have carried out numerous attacks, according to The Hindu. The attacks were triggered by the murder of Raza Haider, a leader of the MQM political party.

As far as I can tell, this violence is politically based, rather than ethnically based. In fact, an acquaintance of mine who was born in Karachi tells me that it's the "Karachi Mafia" that's doing all the killing.

If that's true, then the current violence in Karachi is most similar to the Chicago gang wars of the 1930s, led by Al Capone.

Five people killed in clash on Israel - Lebanon border

Five people were killed in a firefight on the border between Lebanon and Israel, according to the BBC.

This was the worst violence since the 2006 war between Israel and Hizbollah. However, Tuesday's firefight appeared to be a brief skirmish between the Lebanese army and the Israeli army, and is not expect to spiral into anything more serious.

China's real estate bubble may be bursting

Megalomania is in full swing in China's booming economy, according to an analysis of China's real estate bubble in Spiegel.

A property fair in Jinan, China <font size=-2>(Source: Spiegel)</font>
A property fair in Jinan, China (Source: Spiegel)

A month ago, we quoted Kenneth Rogoff as predicting that China's property market was collapsing. (See "7-Jul-10 News -- Rogoff: China's property market near 'collapse.'"

Since then, real estate prices in 70 large Chinese cities declined over the previous month for the first time in 1.5 years, according to the Spiegel article. Xu Shaoshi, China's minister of land and resources, is quoted as saying that the real estate market could undergo a "total correction" in the third quarter.

At the same time, Reuters reports that there is widespread discontent over property seizures by Chinese Communist Party (CCP) élite, who then use the land to build large real estate complexes with borrowed money. China has a record of tens of thousands of "mass incidents" every year, and the practice of land seizures is one of the leading causes.

I've often said that, as bad as the American economy is, China's is even worse. China has a long history of massive rebellions against the political élite, the last one being Mao Zedong's Communist revolution that ran from 1934-1949. From the point of view of Generational Dynamics, a new one will be coming soon.

NASA's Spirit Rover on Mars seems to be gone forever

Nasa's Spirit Rover has been roaming the surface of Mars since January 2004. However, this past winter, Spirit's wheel got stuck in a hole from which it could not free itself, and so Spirit could not travel to a place where it could get maximum sunlight. Apparently, Rover is gone for good, according to Discover Magazine.

However, Nasa is inappropriately showing little sensitivity to poor the lost Spirit Rover, according to Physics Central. Nasa is already moving on to the next project and the next rover.

To stir up a little sympathy, the article references an xkcd comic strip that captures the moment:

The end for Spirit Rover <font size=-2>(Source: xkcd)</font>
The end for Spirit Rover (Source: xkcd)

Desktop speech recognition software becoming more accurate

A significant challenge for the development of super-intelligent computers is speech recognition -- giving the computer the ability to listen to a speaker and translate the voice sounds into the corresponding text. (See "29-Jun-10 News -- Speech recognition brings Singularity closer.")

A new version of Dragon NaturallySpeaking for Windows from Nuance Communications Inc. offers exceptionally high accuracy, according to a review by David Pogue in the NY Times

Once in a previous life I served as Technology Editor for CFO Magazine, and I had occasion to review a number of speech recognition programs. They all claimed to have something like 98% accuracy. That sounds pretty good until you realize that it means that it gets a word wrong every two or three lines, which ends up being quite annoying.

So I was interested to read that Pogue was able to dictate a 1,300 word column, and the software achieved 100% accuracy.

As I've said many times, the reason that artificial intelligence (AI) technology keeps improving is not because the algorithms are improving (although Pogue says that Dragon's algorithms have some improvements), but because computers are getting more and more powerful. When you utter a phrase like "the book," the software compares your voice against a large library of sounds. The more powerful the computer, the more comparisons it can make quickly. By 2020, desktop computers or their descendants should have no difficulty at all understanding spoken sentences in English or any other language.

Thousands of cameras watch streets in northwest China

A year ago, ethnic fighting between Han Chinese and Muslim Uighur populations ended up killing at least 197 people in the city of Urumqi in Xinjang province.

Now, there are 47,000 cameras scanning streets and intersections in Urumqi, and by the end of the year there will be 60,000. Experts are predicting that China will have 15 million surveillance cameras by 2014, according to the NY Times

These camera systems use technologies that border on artificial intelligence. Video software can read license plates, and cameras can take pictures of people inside autos. Facial recognition software is being used increasingly.

Additional links

What will happen to human beings when the Singularity occurs and computers do all the work, leaving human beings nothing to do? Web site reader Nigel Strange has written a short story exploring what happens when a planet is composed of entirely of over-educated unemployed migrant slaves. Plastic Children

PKK militants bombed a train in East Turkey. Although the train was carrying cargo and passengers, there were no casualties. Press TV

Escalating hostilities between Turkish forces and PKK Kurds are threatening US policy in Iraq, which calls for a unified government when U.S. troops withdraw from Iraq. World Politics Review

A year ago, Iranian soldiers arrested three American hikers in Iraq near the Iran border, and accused them of espionage. Why are they still holding them hostage? Because Iran has a history of using hostages to make political statements. Duh. CS Monitor

In a sharp reversal of an earlier decision, Israel has agreed to cooperate with the United Nations probe of the Gaza flotilla incident that killed nine Turkish citizens. Israel hopes to improve relations with Turkey again. Jewish Telegraphic Agency

To stop the proliferation of nuclear weapons in North Korea, the U.S. is planning to choke off the international network of companies and banks that largely fund its nuclear weapons program and the lifestyles of its elite. Washington Post

Speaking in France, Pakistani President Asif Ali Zardari says that the war against Taliban is "being lost." BBC

Prime Minister Vladimir Putin is positioning himself to reclaim the presidency of Russia in 2012. LA Times

(Comments: For reader comments, questions and discussion, see the 4-Aug-10 News -- Kashmir violence spirals upward thread of the Generational Dynamics forum. Comments may be posted anonymously.) (4-Aug-2010) Permanent Link
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Updating the 'real value' of the stock market

Why we're headed for a financial crash.

The stock market reached its historic high in October, 2007, but two months earlier, in August, I wrote "How to compute the 'real value' of the stock market." This and other articles I had written resulted in a fair amount of derision directed at me, since at that time the financial experts and politicians were predicting that, except for an occasional minor bump in the road, the stock market would keep going up forever.

By the end of 2007, I was hearing far less derision, and as the stock market slumped in 2008, I actually heard some occasional grudging praise.

Then the rally occurred in 2009, and since then some level of derision has recurred.

In this article, I'm going to update the diagrams, and outline the reasons why we're still headed for a stock market crash.

Price/earnings ratios and the Law of Mean Reversion

Most investors today are no different from drunken gamblers at roulette tables in Las Vegas. When they aren't playing, they're desperate and depressed. When they make money, they experience a burst of endorphins that keeps them happy for hours. When they lose money, they obsessively double their bets. Brokers have the best of all worlds, since they get to do all of that with other people's money, and then collect fat commissions.

For those investors who wish to make stock purchases based on real value, there's only one reliable measure: past earnings. And you can obtain a measure of the value of a share of stock by means of the price/earnings (P/E) ratios (also called "valuations") -- divide the current stock price by total earnings in the last year.

The average P/E ratio for the S&P 500 stocks between 1871 to 1995 was 13.91. This means that if you purchased an average share of stock a year ago, then the company would have earned 1/13.91 = 7.2% of the share price.

Here's a graph of the price/earnings ratio from 1871 to the present:

S&P 500 Price/Earnings Ratio (P/E1) 1871 to August 2010
S&P 500 Price/Earnings Ratio (P/E1) 1871 to August 2010

As you can see from this graph, the P/E ratio has really skyrocketed since 1995, much higher than its historical average at several points, and ALWAYS higher than its historical average since 1995.

Now, the Law of Mean Reversion says that the average (mean) since 1995 also has to equal roughly 13.91, and if it doesn't, then the average will eventually revert to its historic average. In order to do that, the P/E ratio must go BELOW 13.91 for roughly the same amount and period of time as it was ABOVE 13.91 -- i.e., for 15 years.

This means that the P/E ratio must fall well below ten, and stay there for years. There are people who say "this time it's different," but the burden of proof is on them to explain why it's different.

One fantasy argument that these people use is that we're using "old data" that applied to the doddering old fools who lived years ago and didn't even have iPhones. Well, when the 1929 crash occurred, those doddering old fools were young, and were giving similar reasons why "this time it's different."

In fact, as you can see from the graph, the P/E ratio was as low as 6.79 very recently -- in 1980. If it can fall to 6.79 in 1980, then it can certainly do so again today, and anyone who thinks otherwise is a fool.

Claiming "this time it's different" is a fantasy. Just one look at that graph will tell you that we're headed for the biggest crash in history, much larger than the 1930s crash. This is a mathematical certainty.

When will this crash occur? It's impossible to predict, of course, but here's one way to look at it:

Notice that the three points that I labeled as lows (5.31, 5.82 and 6.79) occurred at 31-year intervals. (But there's nothing like that in 1887, so this may be completely wrong.) So we have to consider the possibility that there's some kind of as-yet not understood 31-year cycle in price-earnings ratios. With only three data points, it's hard to be anywhere near certain. However, if the 31-year cycle holds, then the next low will be in 2011.

Why the Law of Mean Reversion works

The average financial "expert" doesn't consider any historical data relevant. Something that I hear all the time on CNBC or Bloomberg TV is that a stock is "oversold, because its price is lower than the 200 day moving average." In other words, to these "experts," nothing that occurred more than 200 days ago is even relevant to the stock price.

The very high values of the P/E index since 1995 indicate that we've been in a huge bubble. A bubble does permanent harm to an economy, and that harm lasts much longer than 200 days. In fact, a bubble can be compared to a poison that harms every nook and cranny of the economy for a long time.

Let's take the obvious example of the real estate bubble. When that crashed, it obviously affected things a lot longer than 200 days. In fact, the effects today are far from over. The overall foreclosure rate is still increasing. The shadow inventory is so large that even mainstream forecasters are saying that prices will be falling for years. That's an obvious example of how a bubble has longer effects than 200 days.

Another obvious example is the level of personal debt. During a bubble, there's plenty of money available in the form of debt, and so people go deeply into debt, expecting that there'll be more money (credit) in the future to pay off the old debt. At some point, when the credit bubble crashes, and there's no more debt money available, people have to start paying off their debts, and that can take years.

The same kind of thing is true for every business. Businesses borrow a great deal of money during a bubble, and use the money to hire new employees. When they can't borrow anymore, they lay employees off, and don't hire any more. This creates joblessness that lasts for years.

There's another aspect that applies to business. During a bubble, the world looks different than it does after the bubble bursts. In the bubble world, no expense is spared for glamour, with the result that businesses spend their resources on developing the labor and infrastructure to develop and manufacture products that only interest consumers during the bubble. Once the bubble ends, these businesses turn out to have the wrong kinds of employees with the wrong kinds of skills and the wrong kinds of infrastructure. Years are required for the business to figure out what the correct products should be, and to hire employees with the right skills. In the meantime, many of them go out of business.

Every person and business in the country is affected by the bubble. When the bubble ends, it takes many years to pay off debts and restructure businesses. During this time, the P/E average is much lower than it would have been if there had been no bubble.

The auto industry is an obvious example of this. During the bubble, people traded in their cars for new models more often than necessary, and they chose their new cars for prestige value. Large SUVs were the norm. Once the bubble burst, the market shifted away from SUVs, and people held on to their cars much longer, resulting in significant problems for the industry.

The poison that filled every corner of the economy, starting in 1995, was debt. Debt filled the business economy, debt filled the consumer economy, and debt filled the government economy -- in America, in Europe, in China, and elsewhere. The poison created consumer products, created jobs, and created a risk-seeking population. It takes as many years to remove the poison as it did to create it.

One obvious sign of this is that trillions of dollars of "toxic assets" are still in financial portfolios around the world at nominal value -- without having been "marked to market." This "deleveraging" process has already taken several years and has hardly begun. It will take much longer than 200 days. (Paragraphs added - 4-Aug)

That's why the Law of Mean Reversion works. Don't blame me. I didn't make up the Law of Mean Reversion. I'm only telling you what it says.

Attempts to cheat on the price/earnings ratio

When the Great Depression survivors (GI and Silent generations) were running things, they were very risk-averse and very careful with their investments. The P/E ratio was one of their main tools.

When the Silents finally retired in the 1990s, and the Boomers took over in senior management positions, the dot-com bubble began in 1995 (as well as the global real estate bubble).

Since the price/earnings ratios were suddenly out of whack, financial "experts" came up with several alternative ways to compute the P/E ratio to justify the bubble prices:

At this point, you rarely even hear about P/E earnings or valuations used much, or if there's a financial "expert" on tv who refers to valuations, he pulls a number (like 10) out of the air, and announces that stocks are underpriced. It's absolutely incredible.

The 'real value' of the stock market.

In 2002, I was eating lunch at the mall reading the Boston Globe, when I saw a graph of the Dow Industrials going back to the early 1900s. I took one look at it and said, "Ohmigod, the stock market is going to crash." It was that obvious, just from the graph.

The graph must have looked something like the following:

Dow Jones Industrial Average -- 1900 - present
Dow Jones Industrial Average -- 1900 - present

Since I was familiar with exponential curves and growth forecasting, I could see immediately that the DJIA had been growing sharply faster than exponential growth since about 1995, and that meant that we had to have a crash.

Let me start by pointing out a big mistake that I see all the time on the internet. Some people, looking at the above graph, would say that the DJIA was pretty much linear at the beginning, and only began exponential growth around 1960 or 1980. I see this kind of claim with regard to long-range population charts or other charts, all over the internet.

In fact, the curve is exponential from the beginning. The only reason that it isn't evident is because the values at the beginning are too small.

One way to see it is to add a "best fit" historical exponential curve. The blue line in the next graph is a best fit exponential curve from 1904-1994 (I've experimented with other year ranges, and it doesn't affect the final conclusion):

Dow Jones Industrial Average -- 1900 - present - with exponential growth trend curve
Dow Jones Industrial Average -- 1900 - present - with exponential growth trend curve

What this graph shows is that the long-term trend value of the DJIA at the present time is around 6049, and that's the value that could currently be called the "real value of the stock market." By the Law of Mean Reversion, the index will fall far below that amount to compensate for the period since 1995 when it war far above value. Because of the length of time that the DJIA has been above average, my expectation is that it will fall well below 3000 before everything is over.

To make it clearer that the early part of the graph is not linear, let's restrict the above graph to the years 1900-1950:

Dow Jones Industrial Average -- 1900 - 1950 - with exponential growth trend curve
Dow Jones Industrial Average -- 1900 - 1950 - with exponential growth trend curve

What happened in those years was that the bubble of the 1920s crashed in 1929, and the DJIA was below the long-term trend line for a long time, only catching up around 1960.

The best way to display a long-range exponential growth curve, including a population curve, is on graph with a logarithmic Y-axis, as follows:

Dow Jones Industrial Average -- 1900 - 1950 - with exponential growth trend curve / log scale
Dow Jones Industrial Average -- 1900 - 1950 - with exponential growth trend curve / log scale

With a logarithmic scale, the exponential "curve" becomes a straight line, and you can easily when the DJIA is above or below the trend line.

Points of Inflection

I use the mathematical term "points of inflection" in a somewhat informal way, to indicate points in the graph that take a sharp turn (indicating that the second derivative is infinite).

Take a look at the following graph of the DJIA since 1950:

Dow Jones Industrial Average -- 1950 - present - with exponential growth trend curve
Dow Jones Industrial Average -- 1950 - present - with exponential growth trend curve

Prior to 1995, the graph of the DJIA moved in a fairly steady manner, not counting the minor jitters that occur every day. But in 1995, something very different happened. You can see that the graph should have leveled off and started falling, but instead, it turned a sharp corner to the left and moved rapidly upward, resulting in the tech bubble.

Economists are completely baffled by this. They certainly didn't predict it, and even now, they have absolutely no explanation for it.

As I always like to point out, mainstream economists didn't predict or explain the tech bubble, or why it occurred in 1995 instead of 1985 or 2005. They didn't predict and can't explain the real estate bubble, the credit bubble, the credit freeze, the financial crisis, or the worldwide trade and transportation freeze. They can't explain what's happening today, and they have no idea what's coming next year.

I've often complained that mainstream economists must have some kind of brain blockage or mental deficiency, because they seem completely incapable of seeing a generational explanation, no matter how utterly obvious it is.

And in this case, the generational explanation is perfectly obvious. This was the time that the survivors of the 1930s Great Depression all disappeared (retired or died), all at once, leaving the incompetent Boomers to take senior management positions.

Once the tech bubble crashed in 2000, a different dynamic took place. Generation-Xers who were caught in the Nasdaq crash began reaching their 40s, and began taking middle management positions in organizations. Their contempt for Boomers and Silents is well known, and it's well documented that the Generation-Xers created the tens of trillions of dollars of synthetic mortgage-backed securities that created the financial crisis. That explains the point of inflection around the year 2003.

Since my 2007 article, I've added a third point of inflection, occurring around March 2009, the beginning of the 2009 rally.

This was caused by the massive worldwide bailout and stimulus injection. Some $10 trillion of bailout and stimulus money was poured into the economies of America, Europe, China, and other countries. In doing so, the stock market bubble, which was in the middle of crashing, was revived again.

As you can see from the last part of the graph, the stock market seems to have begun its descent again. I would be very surprised if any bailouts or stimuli or quantitative easings will have anything like the effect they had in 2009, but I've been wrong about this before.

Things are quite different today than they were at the beginning of 2009 when these massive liquidity injections occurred. The U.S. debt level is almost unimaginably higher, so much so that any further major bailout or stimulus would be met with enormous domestic and international political opposition. China's economy is in a massive bubble, and Beijing has been doing everything possible to slow it down. Several European countries are deeply in debt (remember the PIIGS?), and more stimulus is out of the question.

If I were to speculate (and these speculations have not always been correct), I would say that it appears that the stock market indexes will continue falling, subject to minor perturbations, and that the DJIA will be much lower by 2011.

That may be a speculation, but there is one thing that's absolutely certain: By the Law of Mean Reversion, the stock market MUST fall sharply at some point. Whether it's 2010 or 2011 or 2012 remains to be seen, but it is a mathematical certainty.

The P/E10 graph

Some people ask me why I don't use P/E10 -- price divided by the average earnings over the previous ten years. In fact, I used to use P/E10, but I decided that people understand P/E1 better, and that it makes the same point -- that by the Law of Mean Reversion, there will be a stock market crash.

S&P 500 Price/Earnings Ratio (P/E10) 1871 to August 2010
S&P 500 Price/Earnings Ratio (P/E10) 1871 to August 2010

The P/E10 graph looks a little different than the P/E1 graph since, by averaging earnings over ten years, the results are less volatile and extreme. Nonetheless, you can see that there was a huge bubble from 1995 on, and the Law of Mean Reversion requires that P/E10 fall below the long-term average for an equivalent amount of time. Once again, this graph makes clear that we're headed for the greatest financial crash in history.

(Comments: For reader comments, questions and discussion, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (3-Aug-2010) Permanent Link
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2-Aug-10 News -- The rise of political and journalistic acrimony

US military has a plan to attack Iran, if necessary

Political and journalistic acrimony - Why it's happening, and how it will end

Anyone who's been paying attention for the last ten years is aware that the level of public acrimony has been increasing steadily. This applies to acrimony in politics and journalism, as well as to surging xenophobia in many countries around the world, involving Jews, Catholics, Americans, Christians, Muslims, Hindus, Chinese, Japanese, French, Mexicans, and so forth.

I've written about this many times on my web site, over the last eight years. The one time that I got a big chuckle out of all the political bickering and acrimony occurred in 2007, when I wrote, "Today's Schadenfreude: The Congressional pay raise is blocked," because of political bickering. If bickering prevents a Congressional pay raise, then it can't be all bad.

Journalistic acrimony was the subject of CNN's Reliable Sources on Sunday. Moderator Howard Kurtz began the program this way:

"We [journalists] have been called everything from patsies to pinheads, blamed for bias, skewered for sensationalism, ripped for recklessness. The atmosphere is just plain ugly.

What accounts for these mean-spirited attacks on the media, and in many cases perpetuated by the media? Why are journalists being called not just wrong, but dishonest, racist, corrupt? ...

It's not that the criticism is not legitimate. The media did perform badly, by and large, in the sacking of Shirley Sherrod. Liberal journalists did say some awful things about conservatives on that off-the-record discussion group [the Journolist]. Conservative commentators did accuse the mainstream media of shilling for Obama by not getting exercised about that New Black Panther Party controversy. There are serious questions about what Rolling Stone's Michael Hastings did with General McChrystal.

But never in my professional lifetime has the media bashing been so deafening, so personal, and so much of it carried out by some pundits against other pundits."

Here are quotes from several of the clips that Kurtz showed to illustrate the point:

MSNBC's Keith Olbermann appearing in a video clip on CNN's Reliable Sources <font size=-2>(Source: CNN)</font>
MSNBC's Keith Olbermann appearing in a video clip on CNN's Reliable Sources (Source: CNN)

The rise of the acrimony culture

Kurtz said that "never in my professional lifetime" has it been so bad. And that's true, since Kurtz is too young to remember the 1930s. Bickering is a part of every culture during generational crisis periods.

In the 1860s, the acrimony got so bad, we actually fought a Civil War over it. In the 1930s, the acrimony was turned first on President Herbert Hoover for failing to stop the stock market crash, and then President Franklin Roosevelt was the target of many scandal accusations, some of which still haven't yet been settled. (Just google the term "FDR scandals" and get thousands of hits.)

Generational Dynamics theory explains why this acrimony is occurring, and also explains exactly how it's going to end.

I like to start by reminding people how different the world was in the 1980s.

At that time, the people in charge were from the generations that had survived the Great Depression and World War II -- the great GI generation, that had fought the war, and the Silent Generation, the children who grew up during that period, and suffered a kind of generational child abuse as a result. These people understood the importance of putting political differences aside and reaching compromises, for the good of the nation as a whole.

Thus, in the 1980s, Ronald Reagan and Tip O'Neill could get together in a bar in the evening, tell jokes, and drink Irish beer. The Republicans and the Democrats could cooperate with each other to change the Social Security system to make it a sounder system. After that, they could cooperate again to specify new rules to control the budget deficit. Compromise was still possible in 1996, when Democratic President Bill Clinton, saying that "the era of big government is over," cooperated with the Republican Congress to eliminate the welfare entitlement.

I doubt that anyone will argue with me when I say that NOTHING, ABSOLUTELY NOTHING like that is possible today. The only argument will be that Democrats will blame Republicans, and Republicans will blame Democrats.

Since the 1990s, the GI and Silent generations have all but disappeared. The Boomers came next, and now Generation-X is pretty much in charge of things. The result has been the dot-com bubble, the real estate bubble, the financial crisis, and an unlimited amount of acrimony.

Here's a quote from South Carolina Senator Lindsey Graham on CNN on Sunday:

"And to the American people, immigration is broken and will never be fixed until we change our laws. Our laws are broken. If you want to fix immigration, allow Republicans and Democrats to get in a room and do some good old-fashioned horse trading to -- to get this thing fixed. If we keep yelling at each other; if we keep just saying no to each other's idea, we're going to have one thing in common: we're going nowhere together."

The problem is that this is literally impossible today. It was possible in the 1980s, but "horse trading" between Republicans and Democrats on anything but trivial issues is impossible, because the mood of the country is acrimony.

The acrimony will keep on increasing, and will only end when something forces it to end.

Regeneracy events

The word "regeneracy" is a technical term in generational theory. It refers to a point in time when the political bickering ends, and civic unity is regenerated because the survival of the country is at stake.

What kinds of events cause a regeneracy? In the Civil War it was the Battle of Bull Run, the first battle that made everyone aware that the country might not survive. In World War II, it was the combination of Pearl Harbor and the Bataan Death March.

What kinds of regeneracy events might be in our future? It's impossible to predict, or course, but there are some obvious possibilities. One possibility is a massive terrorist attack on American soil, such as a nuclear explosion somewhere. Another possibility is a big military defeat, such as the sinking of an aircraft carrier or two by Chinese missiles. When an event of this kind happens -- and it WILL happen -- then the regeneracy will occur.

The good news is that the bickering will be reduced, and the nation will be unified once more behind its leaders. And I would expect the Tea Party movement to play an important role in that.

The bad news is that we'll be in a world war.

Additional links

Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, says that the military has a plan to attack Iran if necessary. Iran promised a "firm response" if an attack takes place. Associated Press

The United Arab Emirates has threatened to terminate BlackBerry's Messenger, e-mail and web browsing services on October 11, unless RIM, the vendor, agrees to supply the UAE with the codes that will allow the country to intercept and read e-mail messages. Bloomberg

Two South Koreans were killed when they picked up boxes containing land mines that had apparently floated downstream from North Korea in heavy rain. JoongAng

New online services are available that let you learn a foreign language from native speakers in other countries who wish to learn English in return. NY Times

Zimbabwe's President Robert Mugabe, 86 years old and emotionally disturbed, told the European Union to "go to hell" yesterday at a funeral, because of the EU's refusal to lift travel sanctions and bank freezes of his ZANU-PF élite. Mugabe has turned Zimbabwe, the breadbasket of Africa in the 1990s, into a starving, disease-ridden country. where torture and murder of his political enemies are the norm. Scotsman

A new surgical robot being developed at Duke University is able to perform certain kinds of surgical procedures with no human assistance. Duke University

(Comments: For reader comments, questions and discussion, see the 2-Aug-10 News -- The rise of political and journalistic acrimony thread of the Generational Dynamics forum. Comments may be posted anonymously.) (2-Aug-2010) Permanent Link
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1-Aug-10 News -- Pakistan cancels intelligence sharing mission with UK

Violence in Kashmir is escalating

Pakistan cancels intelligence sharing mission with UK

British Prime Minister David Cameron's remarks earlier this week, accusing Pakistan of supporting terrorist activities in India and Afghanistan, have exposed several rifts among different entities.

In Pakistan itself, Gen. Ahmed Shujaa Pasha, the head of the Inter-Services Intelligence (ISI) agency, has canceled a long-planned visit to London, according to CNN. The purpose of the meeting was to discuss intelligence sharing for the war on terror, but right at the moment, the entire intelligence sharing arrangement is in doubt.

On the other hand, Pakistan's president Asif Ali Zardari has a separately scheduled meeting in London next week, and different news reports are saying different things about whether that meeting too will be canceled. Apparently the planned meeting with David Cameron is on, according to Associated Press of Pakistan. At a news conference, Pakistan's Information Minister said that Cameron's remarks were not in "good taste," but that Zardari would attempt to convince Cameron of the importance of Pakistan's role in the war on terror.

The confused response by different officials in Pakistan's government exposes a division within the government, according to Dawn.

From the point of the view of Generational Dynamics, the long-term trends are consistent with this division in Pakistan's government.

The ISI is a largely Sunni Muslim organization, with people mostly from the Punjab region. Zardari is Shia Muslim, and became President as a consequence of the assassination of his wife, Benazir Bhutto, who was from a prominent Shia family.

Historically, Shia Muslims have been allied with Hindus against Sunni Muslims, and so it stands to reason that Zardari and Pasha see things a bit differently, especially since the long-term trend is for a new war between Pakistan and India.

There are been three major events in the last few weeks that have affected Pakistan's internal and external relations:

These events are triggering changes in public opinion in Pakistan, and from the point of view of Generational Dynamics, those changes could be significant.

Additional Links

The violence in Kashmir is escalating, with six deaths in the last two days. Hindustani Times

A Taliban spokeman announced that the Taliban are poring over the Wikileaks documents to find the names of pro-American Afghans. NY Times

Israel's air force continues to bomb Hamas targets in Gaza for a second day, in retaliation for a Kassam rocked fired into Israel last Saturday. Jerusalem Post

Many indigent refugees who are severely disabled or over the age of 64 will lose all their benefits on October 1. NY Times

(Comments: For reader comments, questions and discussion, see the 1-Aug-10 News -- Pakistan cancels intelligence sharing mission with UK thread of the Generational Dynamics forum. Comments may be posted anonymously.) (1-Aug-2010) Permanent Link
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