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 Forecasting America's Destiny ... and the World's


Web Log - November, 2010


30-Nov-10 News -- Europe's financial crisis worsens after Ireland bailout

Iran's nuclear facilities under terrorist attack

I was caught by the east coast internet outage on Sunday evening, so I was essentially a blind man, and could not write anything to be posted on Monday. I apologize for the inconvenience.

Europe's financial crisis worsens after Ireland bailout

"The crisis is intensifying and worsening," according to a financial expert quoted by Ambrose Evans-Pritchard in the Telegraph.

European leaders are bitterly disappointed that the latest bailout did not end the panic selling on bonds from Portugal, Ireland, Greece and Spain. But it's even worse. The fifth PIIGS country, Italy, is now targeted as well, as interest rates on bonds from Italy and even Belgium jumped to record highs. High interest rates (yields) indicate that investors are selling bonds because they believe that the probability of default is high.

Meanwhile, it seems that Ireland has not yet signed off on the bailout, and cannot until the parliament passes a severe austerity budget. But parties opposing the governing coalition are also opposing the austerity measures demanded for the bailout, so there may be problems getting the bailout signed off.

An analysis by the Financial Times (Access) indicates that, even with the bailout, Ireland has to choose between letting the government default or allowing a wave of bank failures in Ireland. The article recommends the latter, which indicates to me the people with money on deposit in Irish banks should be considering their options.

Things are getting so bad in Europe that politicians can't openly lie any more without people wondering if they're lying. So when politicians say that Ireland should be ok now, or that Spain and Italy don't need a bailout, the statements aren't blindly accepted as bible truth by the journalists and analysts.

Germany is at the center of all this, because the German economy is the only one that's still doing well, and it's the biggest economy in Europe. What this means it that it will be up to Germany to bail out all the PIIGS countries, and any other country that runs into trouble, and it's pretty clear that's not going to happen.

An analysis in Spiegel examines what will happen if the euro currency collapses. There are two scenarios considered. In one scenario, the euro is eliminated, and each country returns to the national currency it used in the 1990s. The article points out that some 50% of Germans would like to see the deutsche mark currency reinstated, and that an estimated 13 billion deutsche marks are still stashed away in people's mattresses and other hiding places.

In the second scenario, the euro would split into two currencies. The more stable euroland countries, including Germany, Austria and the Netherlands, would jointly introduce a "northern euro" or "hard-currency euro," based on budget discipline. The PIIGS countries would join a southern euro that could be devalued at any time.

The article points out that either of these scenarios would be disastrous for Germany. The costs to implement the new currency would be "staggering." But more important, the strong northern euro would make German exports so expensive that German exports would tank, and unemployment would skyrocket.

This last point is particularly ironic. Readers may recall that back in the days of the bitter discussions of the bailout of Greece, Germany was accused of being responsible for Greece's troubles, by having lent money to Greece so that Greece could purchase German exports. That trick would no longer be possible if a southern euro were devalued.

This situation is getting more and more dangerous each day. European countries are already becoming increasingly nationalistic and xenophobic, and a financial crisis is going to make that much worse. One need only recall that it was the collapse of Austrian and German banks in 1931 that led the rise of Hitler and Naziism and to World War II.

South Korea's president apologizes for North Korea's attack

The situation on the Korean peninsula is also becoming more dangerous each day, with nationalism on the rise between the two Koreas.

In a nationally televised address on Monday, South Korean President Lee Myung-bak vowed to make North Korea pay the price for it's provocations, according to the Korea Times.

Lee apologized to the nation for "failing to protect the lives and property of the people," and said:

"Our people learned a lesson from the attack that endurance and tolerance will spawn nothing but more serious provocations by North Korea.

For the past two decades, we’ve made efforts to resolve the nuclear issue through dialogue and cooperation. But the reality is that North Korea doesn’t stop provocative acts and is still developing nuclear weapons. ...

It’s time to act, rather than speak."

Lee promised retaliation -- naval and air strikes on North Korea -- in case of any further attacks by North Korea, but it's not lost on anyone that he said that after the sinking of the Cheonan warship last spring by a North Korean missile.

Meanwhile, Lee has apparently backed down again, in the face of North Korean threats. The U.S. and South Korea are currently conducting joint military exercises in the Yellow Sea, and the announced exercises were to include live fire maneuvers. But Associated Press reports that in a "sign of disarray," shortly after Lee's speech vowing to get tough on the North, the live fire maneuvers were canceled to avoid provoking the North.

The Korea Times is reporting that the North's official Korean Central News Agency (KCNA) said in a commentary that North and South Korea are already in a "semi state of war," and that "We don't want war, but are never afraid of one."

Now, there's something that distinguishes North Korea from most of the rest of the world. Almost everyone else in the world over age 40 is afraid of war, but not the North Koreans. I don't doubt that that's true, and it's one more reason why war cannot be avoided.

Iran's nuclear facilities under terrorist attack

As we've reported several times in recent months, the Stuxnet computer virus has spread to desktop computers around the world, and is designed to disable or destroy plants and installations using systems from Germany's Siemens AG. However, the originators of the virus, the intended target of the virus, and the method of disablement have not been determined.

Recent forensic analysis (reverse engineering) of the virus has revealed that Stuxnet is now believed to work by making quick changes in the rotational speed of the motors in centrifuges used to enrich uranium in nuclear plants. Rapid changes can cause them to blow apart, according to the NY Times.

In a surprise announcement on Monday, Iranian President Mahmoud Ahmadinejad confirmed that Stuxnet had, in fact, attacked the centrifuges in Iran's nuclear facilities that are being used to produce enriched uranium. The result is that thousands of centrifuges stopped productioin earlier this month, according to Wired. (Paragraph corrected - 30-Nov)

This announcement coincided with news that two of Iran’s top nuclear scientists had been ambushed Monday by assassins who killed one scientist and seriously injured the other. Ahmadinejad is naturally blaming Israel and the U.S. for the assassinations.

According to information from the intelligence service Debka, one of the scentists was iran's top expert on Stuxnet and cyber war, and the ambushes took place in the most secure district of Tehran, possibly indicating cooperation from the inside.

However, some sources indicate that the attack may be the work of Jundallah, a terrorist group that has committed several terrorist attacks in Iran that we've reported in the past. Jundullah is an al-Qaeda linked Sunni terrorist group, targeting the hated Shia Iran.

Additional links

On Sunday, voters in Switzerland pass a "Deportation Initiative" brought by the right-wing Swiss People's Party (SVP) that permits the expulsion of foreigners convicted of crimes ranging from murder to welfare fraud, without appeal. A year ago, the Swiss voted to ban the building of minarets. (See "Switzerland shocks itself by passing a ban on minarets.") This new sign of xenophobia is being called a new "populist surge" by senior European Union officials. CS Monitor

A year after the climate change conference in Copenhagen collapsed in humiliation for everyone, a new international climate change conference is opening in Cancun, Mexico, with low expectations. NY Times

(Comments: For reader comments, questions and discussion, see the 30-Nov-10 News -- Europe's financial crisis worsens after Ireland bailout thread of the Generational Dynamics forum. Comments may be posted anonymously.) (30-Nov-2010) Permanent Link
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28-Nov-10 News -- North Korea fires missiles as war games begin

Europe rushes to bail out Ireland by Sunday evening

North Korea fires missiles into Yellow Sea

At this writing on Saturday evening, there are reports that North Korea is firing missiles into the Yellow Sea, near Yeonpyeong Island, where civilians were killed by North Korean missiles on Tuesday.

The new missile firings come just hours before joint military exercises between the US and South Korea are to begin in the Yellow Sea.

At the same time, Tuesday's attack is generating a desire for revenge by the South Koreans, according to the NY Times. South Koreans have been deeply shocked by the North's ferocious attacks on civilians, and are demanding some kind of revenge. However, most are not demanding a full scale military response, since that would trigger all out war.

Europe rushes to bail out Ireland by Sunday evening

Tempers are flaring as European Union officials rush to put together a bailout plan for Ireland before the Asian markets open on Monday morning, which is Sunday evening in New York and London.

Under the bailout plan, Ireland is expected to receive a loan of 85 billion euros, and will be forced to nationalize the Bank of Ireland, according to the Telegraph.

Something that's particularly infuriating to the Irish is that Ireland will be forced to pay 6% interest on the loan, much higher than the 5.2% interest that Greece will have to pay. The reason for the higher rate is that the loan to Ireland will be for 6 years, while the loan to Greece is nominally just 3 years.

On Saturday, some 50,000 people marched in Dublin to protest the bailout plan and the budget cuts.

Ireland's top labor leader, David Begg, speaking to the crowd, said that Ireland should not have to borrow any money because they're still owed money in German reparations that were imposed by the Treaty of Versailles after World War I, according to the Irish Times:

"Does anybody in this country or in Dáil Éireann think that we can as a people afford to pay 6.7 per cent on money that we did not ask for in the first place and that is being forced upon us to bail out the banking system in Europe which is in hock to this country for €509 billion. We can’t pay that money and we won’t pay that money. ... Well our gallant allies in Europe have arrived 95 years too late and uninvited and instead of guns to help the revolution they have brought economic weapons of mass destruction."

The bailout plan comes just two weeks after Ireland insisted that no bailout is needed. But as we reported yesterday, since the beginning of the year, investors appear increasingly to be panic-selling bonds issued by Ireland, Greece, Spain and Portugal. The Europeans are hoping and praying that a quick bailout of Ireland will cause investors to say, "Whew! That was close! But now the crisis is over!" Fat chance.

Last spring, Greece was insisting it didn't need a bailout -- until it did. Then Ireland said, "We're different from Greece, and we don't need a bailout." But now they do. And now we're hearing that Portugal and Spain are "different," and don't need a bailout. We'll see.

How secure is depositors' money in Irish banks?

People who have deposited money in Irish banks should consider withdrawing it as quickly as possible, according to an article in the Daily Mail.

It now appears that Bank of Ireland and Allied Irish Bank will be nationalized, while Anglo-Irish bank was already nationalized in September. This means that deposits are guaranteed by the Irish government, but will be at risk if Ireland defaults.

British advert
British advert

The nearly 2.3 million British people who have invested billions of pounds in Irish deposits and bonds. Britain has already supplied some bailout money to Ireland's banks, and is also guaranteeing the safety of some depositors' money in Irish banks, as described in the adjoining ad.

If you have money in Irish banks, you should consider your options.

Additional links

Thanks to the bailouts of Greece and Ireland, the International Monetary Fund (IMF) is gaining new authority and prominence. NY Times

Many Boomers will have no retirement money, as pension plans are vastly underfunded, and 401k plans are not doing very well. Newsweek

(Comments: For reader comments, questions and discussion, see the 28-Nov-10 News -- North Korea fires missiles as war games begin thread of the Generational Dynamics forum. Comments may be posted anonymously.) (28-Nov-2010) Permanent Link
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27-Nov-10 News -- Europe is torn apart as financial crisis hits Spain

North Korea threatens imminent war with South Korea

Europe is torn apart as Spain's bond become target of panic selling

There was one bit of dark humor going around on Friday, as Europe's financial situation measurably worsened.

Portugal's finance minister Fernando Teixeira dos Santos said that Portugal doesn't need a bailout, and the European Union can't force Portugal to take one, according to Bloomberg.

Dos Santos said, "There are those who think that the best way to preserve the stability of the euro is to push and force the countries that at this moment have been more under the floodlight to that aid. But that is not the vision or the political option of the countries that are involved."

The reason that his statement is very, very funny is because it was just a week ago that dos Santos was saying that Ireland HAD to accept bailout money, for the good of everyone. "I want to believe they will decide to do what is most appropriate together for Ireland and the euro. I want to believe they have the vision to take the right decision," he said, according to Reuters.

So, this week the worm has turned, the shoe is on the other foot. Now it's Portugal that appears to be headed for certain default, and many analysts are calling a quick bailout of Portugal to calm the markets.

But we're beginning to see how the game is played. When a country is going to be bailed out by the European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF), this troika has the right to demand certain things in return, usually an extremely harsh austerity budget to reduce the country's debt. So Ireland held off asking for aid as long as possible, in order to retain its negotiating leverage, and now Portugal is doing the same.

Even with all that going on, Portugal really isn't the big story today. The big story is Spain.

The following graphs show the bond yields for each of the PIIGS countries, excluding Italy:

10-year bond yields for Spain, Portugal, Ireland and Greece -- year preceding November 26, 2010 (Bloomberg)
10-year bond yields for Spain, Portugal, Ireland and Greece -- year preceding November 26, 2010 (Bloomberg)

The above graph shows the yields (interest rates) on 10-year bonds sold by each of the four countries. The yield is highest if investors believe that the country is so far in debt that it might not be able to purchase the bond back after ten years.

Last spring, we were writing about what appeared to be an all-out panic over Greek bonds, as yields reached over 12%. When the $1 trillion super bailout was announced in May, yields fell in all four countries, as investors accepted the claim that their bond investments were safe.

Now Ireland's bond yields are above 9% and Portugal's are around 7%. These figures are extremely high, when you consider that the yields on Germany's bonds are around 2.3%.

But what's capturing everyone's attention now is Spain. Bond yields are around 5.2%, but they appear to be going parabolic, as you can see from the graph. A bailout of Spain would cost more than the other three bailouts combined.

The European Union is increasingly in disarray, with the most angry differences focused on Germany, the largest economy, and the one weathering the crisis best. Last week, Chancellor Angela Merkel expressed the opinion that countries should be allowed to default, rather than be bailed out. According to an analysis by the Irish Times:

"The bailing out of Ireland was, among other things, designed to contain the euro zone financial crisis. It has failed to do that. ...

The ratchet of ever-rising yields has broken Ireland and Greece. It is very difficult now to see how Portugal can avoid the same fate. If – or much more likely when – that fate befalls the smaller of the Iberian states, there is little reason to believe that its bailing out will do anything more to calm the crisis than did the rescues of Ireland and Greece.

Europe’s economic strains are causing political strains, which in turn make containing the economic crisis more difficult. At times they have exacerbated it.

Vicious cycles are becoming visible. Frustrations are boiling over and openly critical statements by political leaders are being made of their counterparts.

Germany has been the subject of most opprobrium. Interventions by its leaders and central bankers since the start of the financial crisis have often been as damaging as they have been inexplicable.

No intervention has been as damaging or as inexplicable as Chancellor Angela Merkel’s call earlier this month to create a framework to impose losses on holders of government bonds. The statement poured petrol on the fire in the bond market.

There can be little doubt now the correct-but-appallingly-timed call triggered the panic that did it for Ireland.

If it weren’t for Germany’s demonstrated commitment to European integration over decades, one would suspect that it was working to ensure it has an exit option from the euro if its elite or public decide they can no longer bail others out.

In Ireland, there is plenty of finger-pointing and blame-apportioning. In the Department of Finance, there is fury with the Germans for fanning the flames in the bond market.

Anger at Germany is matched by that towards the European Central Bank. Two weeks ago it pulled the trigger that led to the bailing out of Ireland.

“The ECB f--ked us,” said one official matter-of-factly yesterday.

And this fury is not confined to the Government and its officials. Fine Gael’s finance spokesman, Michael Noonan, suggested that Germany was benefiting from the crisis and that the EU institutions may be imposing too great a burden on Ireland. He said, too, that he wanted to tell the European Commission that “Ireland was not a colony”.

For a member of a political party that has been as committed to the integration project as any in Europe to speak in this way is surely of some considerable significance. ...

Deepening divisions and rising political tensions in Europe weaken the prospects of addressing the growing financial crisis with a co-ordinated and proportionate response.

The situation is beginning to feel like the weeks after the collapse of Lehman Brothers in September 2008. Things are on the slide. Policymakers may need some dramatic action early next week if the slide is to be halted."

This is a pretty good analysis of some of the strains that Europe is facing.

If you look once more at the bond yield graphs above, you'll see one more thing: Bond yields have been rising steadily for a year, and show no signs of stopping. It wouldn't be far from the truth to say that investors are panic-selling all of Europe's financial system.

The Irish Times analysis concludes, "Policymakers may need some dramatic action early next week if the slide is to be halted."

Well, policymakers have already taken dramatic action -- several times in fact. The most dramatic was in May, with the $1 trillion bailout.

There's a good reason why I keep referring back to my 2008 article, "One, Two, Three ... Infinity." The point of that article is that each bailout would fail, and the next one would have to be larger, and would achieve a smaller effect.

The point that I've been making on this web site for years is that there's NO SOLUTION to this situation. You have politicians and analysts who say that if Merkel had only said or not said something, or if the EU had only done or not done something, then the problem would be solved. But the problem is never solved, because there's NO SOLUTION. This crisis is generational. It was caused by the debased and debauched use of debt by the Boomers and Generation-Xers, after the Great Depression survivors had retired or died. Now a price has to be paid for that debauchery, and there is nothing that any politician can do to stop it.

EU officials are working this weekend to negotiate the final details of the bailout of Ireland. They want the plan to be completed by Sunday evening, before the markets open in Asia. The hope is that the plan will reassure the markets once and for all, and that bond yields will start to fall again. We'll see.

North Korea threatens imminent war with South Korea

The London Independent is reporting from Moscow that a Russian news agency is reporting that thousands of North Koreans working in eastern Russia have apparently been recalled to North Korea. The recall apparently was issued after Tuesday, when North Korea bombed the South Korean island of Yeonpyeong. If this report is true, then it indicates that North Korea is preparing for imminent war.

The following photo, also from the Independent, shows the damage done to the homes on Yeonpyeong island:

Destroyed houses on the once calm Yeonpyeong Island (Independent)
Destroyed houses on the once calm Yeonpyeong Island (Independent)

North Korea fired artillery shells into the sea on Friday, but did not strike any South Korean targets. Still, the firing unnerved a lot of people, who fear that they will be targeted again.

North Korea also said that the planned joint U.S.-South Korea military exercises in the Yellow Sea next week threatens the Korean Peninsula with imminent war.

Here's an Al-Jazeera video on Friday's news from South Korea:

Like the situation in Europe, the situation in Korea has no solution. The tension has been growing for a long time, and North Korea has been increasingly belligerent. Pundits who are saying, "Oh, this is just a kerfuffle over a succession crisis in North Korea, and it will all pass quickly" are dreaming. North Korea is a starving nation, and there's a clear generational change going on to younger people who see a war with South Korea as the solution to North Korea's problems.

Additional links

In another example of black humor, Russian Prime Minister Vladimir Putin said on Friday that he was very confident that the euro would survive the debt crisis, and he added that Russia might join euroland -- meaning that Russia would drop the ruble as currency and switch to the euro. In his speech in Berlin, he criticized the US dollar monopoly. Associated Press

With thousands of people sick from Cholera in Haiti, "body collectors" are collecting the bodies of people dead in the streets or at home, and burying them in mass graves. NY Times

The Saudi Arabia interior ministry announced the arrests of 149 terror suspects resulting from an 8-month sting. Most of the terrorists were targeting Saudi military and government buildings. One analyst said that the sting pointed to successful recruiting by Al-Qaeda on the Arabian Peninsula (AQAP). VOA

India is commemorating the massive 11/26 terrorist attack on Mumbai on November 26, 2008. The attack raised tensions with Pakistan, since Pakistan-based terrorists have been blamed for the attack. Indians are still blaming the Pakistan government for failing to bring to justice all the people involved in the attack. Times of India

(Comments: For reader comments, questions and discussion, see the 27-Nov-10 News -- Europe is torn apart as financial crisis hits Spain thread of the Generational Dynamics forum. Comments may be posted anonymously.) (27-Nov-2010) Permanent Link
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26-Nov-10 News -- South Korea in chaos over North's attack

Yields on bonds issued by Spain and Portugal still at crisis levels

South Korea's defense minister resigns over North Korean attack

South Korea's government is in chaos as the dimensions of Tuesday's surprise North Korean artillery attack on civilians on Yeonpyeong island become clear.

It's become clear that the North Korean attack was premeditated, and planned well in advance, according to Chosun. Furthermore, analysis of the debris from the attack reveals that the North Koreans fired dozens of "fuel-air shells" at the island. These shells generate high heat and high voltage, for maximum killing power of civilians,

The South Koreans have no idea how to respond. They seem to understand what I've said repeatedly -- that the North Koreans, facing national starvation, WANT a war. So if the South Koreans respond militarily, then the North will get its war. If they fail to respond, as they did when the warship Cheonan was sunk last spring, then they look like impotent fools.

Defense Minister Kim Tae-young was sacked on Thursday, under pressure because the military had been surprised twice, by the Cheonan incident and the current incident. According to Chosun, South Korean President Lee Myung-bak was furious about a remark that the defense minister made on Wednesday, instructing the military to avoid escalation.

North Korea is claiming that the South fired artillery first, according to CNN. The North's state-run broadcaster KCTV reported a statement:

"If the U.S. truly wishes to ease the tension in the Chosun [Korean] peninsula, rather than protecting the puppet South, they should control the South, so the South will not hang on to maintaining the NLL [Northern Limit Line] by invading territorial waters and firing artilleries. This incident shows that the acutal offender of the armistice is the puppet South and it is the U.S. which created tension in the Chosun west sea."

The statement also threatens additional military attacks if the South continues "reckless military provocation."

This may be referring to announced joint U.S.-South Korea military exercises planned for next week in the Yellow Sea. The Yellow Sea is called the West Sea by the Koreans, and it's the body of water separating Korea from China.

Similar military exercises had been planned in the Yellow Sea in the past, but they were relocated out of the Yellow Sea after objections were voiced by the Chinese. This time, however, the North Korean actions have been so egregious that it seems unlikely that the U.S. and South Korea will back down again.

This all comes at a time when the North Koreans have just made public a brand new ultra-modern uranium enrichment facility, capable of producing fuel for nuclear weapons. The nuclear capability is a powerful negotiating tool, and one they're not going to give up, according to an analysis by VOA.

After the Cheonan incident last spring, I said that a war could begin at any time, simply through miscalculation on either side. That's even more true today.

Additional links

Yields (interest rates) on bonds issued by Spain and Portugal continued at high crisis levels on Thursday, indicating that the announced bailout of Ireland is not having anything like the effects on the markets that the bailout of Greece had in May. Associated Press

European officials are proposing to double the size of the 440 billion euro bailout fund created last May after Greece was bailed out, so that money will be available to bail out additional countries. But Germany is rejecting the idea. As the largest economy in Europe, Germany would have to provide a large portion of the fund. WSJ (Access)

Israel's former prime minister Ehud Olmert is splitting with this successor, Benjamin Netanyahu, saying that Israel should agree to extend the moratorium on settlements in the West Bank. Associated Press

50 things every guy should know how to do. Guyism

(Comments: For reader comments, questions and discussion, see the 26-Nov-10 News -- South Korea in chaos over North's attack thread of the Generational Dynamics forum. Comments may be posted anonymously.) (26-Nov-2010) Permanent Link
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25-Nov-10 News -- Have a very merry fractal Thanksgiving!

Today's world isn't so different from the 1600s

Have a very merry fractal Thanksgiving!

One of the properties of a fractal is that you can zoom into a tiny portion of it, and it still looks like the original fractal.


From the point of view of Generational Dynamics, history is like a fractal. Today there are about 250 countries in the world. But if you go back to the time of the first Thanksgiving, there were about 300 Indian tribes in what is now the U.S., and the interactions between those tribes were similar in many ways to the interactions of countries today.

Pick any moment in the 20th century, and there were probably some 30-40 wars going on in the world at that moment. So it's reasonable to assume that there were around 40 wars going on in the United States in 1620, and perhaps several hundred around the world.

So let's zoom in to one place, southern New England in 1620, when the Pilgrims arrived. Little is known about the history of the region prior to 1620, but there's evidence of a major crisis war among the Wampanoag, Narragansett and Mohawk tribes in the 1590s, devastating all three tribes.

We have no way of knowing the details of what the Indian tribes had fought over, but chances are it was over what most wars are fought over -- land. Each tribe wanted the best hunting, fishing and farmland for its own use, so its people wouldn't starve.

Wampanoag chief Massasoit was most likely in the Hero generation, a warrior of the previous crisis war, and by 1620, the tribe was in a generational Awakening era, as described in Generational Dynamics: American History.

So, when the pilgrims arrived at Plymouth Rock in 1620, in the midst of the Wampanoag tribe, they had little trouble developing a pleasant cooperative relationship with Massasoit and his Awakening era tribe. The Wampanoag taught the colonists how to hunt and fish, and in autumn of 1621, they all shared a Thanksgiving meal of turkey and venison.

This friendliness extended to trade. Before long, there was a mutually beneficial financial arrangement between the Indians and the colonists. The colonists acted as intermediaries through whom the Indians developed a thriving business selling furs and pelts to the English and European markets, and they used the considerable money they earned to purchase imported manufactured goods.

By the 1660s, the region was entering a generational Crisis era, and things started to go wrong.

Massasoit died in 1660, leading to xenophobia and some dramatic changes. Historians Eric B. Schultz, Michael J. Tougias point out: "The relationship between English and Native American had grown inordinately more complex over forty years. Many of the important personal ties forged among men like Massasoit and Stephen Hopkins, Edward Winslow, and William Bradford had vanished. The old guard was changing on both sides, and with it a sense of history and mutual struggle that had helped to keep the peace."

Massasoit was replaced as Chief by his oldest son, Wamsutta -- who died under mysterious circumstances that were blamed on the colonists. The younger brother, Metacomet, nicknamed King Philip by the colonists, became Chief.

Things REALLY began to turn sour in the 1660s for another reason: Styles and fashions changed in England and in Europe. Suddenly, furs and pelts went out of style, and the major source of revenue for the Indians almost disappeared. This resulted in a financial crisis for the Indians, and for the colonists as well, since they were the intermediaries in sales to the Indians.

But that's not all. Roughly 60-70 years had passed since the end of the last tribal war. The Mohawk War (1663-80) began, and created pressure from the west. The colonists were establishing ever-larger colonies in the east. In this pressure cooker atmosphere, the Wampanoag tribe, led by a young chief anxious to prove himself, allied with their former enemy, the Narragansett tribe, to fight their new enemy, the colonists.

There were numerous provocations in the 1660s, with many Indians brought to trial. The trial process was brought to a head in 1671, when King Philip himself was tried for a series of Indian hostilities, and required by the court to surrender all of his arms; he complied by surrendering only a portion of them.

After that, the trial process seems to have fallen apart, as the colonists began to lose their patience and willingness to compromise. Trials were still held, but they became mere provocations: they were kangaroo courts with the results preordained, and the Indian defendants were always guilty.

These mutual provocations kept escalating, until King Philip's War began with Philip's attack on the colonists on Cape Cod.

The war was extremely savage and engulfed the Indians and the colonists from Rhode Island to Maine. There were atrocities on both sides, and the war ended with King Philip's head displayed on stick. His wife and child were sold into slavery. King Phillip's War was the most devastating war in American history on a percentage basis, with 800 of the 52,000 colonists killed. It was equally devastating for the Indians.

Now, if we zoom back out to the fractal world of today, it's easy to believe we're nothing like those people in the 1600s, with our iPods and skyscrapers, but really, the basics are all the same.

We have one crisis with continual provocations by North Korea, a nation desperately close to starvation. We try to deal with the provocations with international inquiries and sanctions, and demands that the North Koreans surrender their nuclear weapons, but nothing happens. At this writing, a US carrier strike group is headed for the region, in response to North Korea's latest warlike acts.

Another crisis today is in Europe, where people used to derive great incomes from hedge funds and real estate, but as the bubbles burst, they've lost their primary sources of revenue and earnings. We're watching an unfolding financial crisis, an "age of austerity," and riots and demonstrations spreading across the region, as countries face insurmountable debt.

Around the world there are "megacities," each containing tens of millions of people living in shacks or abandoned warehouses, with no access to farmland. Families in poverty in those cities often survive by foraging in large garbage dumps for scraps of food left over by people who can afford to buy food. As population continues to increase, these megacities multiply. These problems have gotten many times worse in the last two centuries because medical discoveries have lowered the infant and child mortality rate from 40-50% to 1-2%, leading to huge masses of young men needing to feed their families, and ready to fight wars. That's why 20th century wars killed many times more people than 19th century wars.

So all the iPods in the world don't change the fact that we're still the same human beings with the same DNA, facing the same challenges that human beings have faced for millennia and, indeed, the same kinds of challenges that all forms of life face.

And so, as you zoom from the world into your own home and share Thanksgiving dinner with your family and friends, think about how your little home and family is like one of those homes and families in the 1600s, a tiny dot in a huge world where anything can happen.

(Comments: For reader comments, questions and discussion, see the 25-Nov-10 News -- Have a very merry fractal Thanksgiving! thread of the Generational Dynamics forum. Comments may be posted anonymously.) (25-Nov-2010) Permanent Link
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24-Nov-10 News -- South Korean civilians shelled by North Koreans

Euro in crisis as countries seem to be falling like dominoes

South Korean civilians shelled by North Koreans

North Korea fired around 100 artillery shells into Yeonpyeong Island off the west coast, killing two South Korean marines and wounding 19 people, and the South Korean Navy returned fire, according to JoongAng Daily. Some of the wounded were civilians.

S. Koreans watch smoke rise from Yeonpyeong Island, the target of N. Korean artillery shells (JoongAng)
S. Koreans watch smoke rise from Yeonpyeong Island, the target of N. Korean artillery shells (JoongAng)

Yeonpyeong is below the NLL (Northern Limit Line), the sea border that divides North and South Korea (Korea Times)
Yeonpyeong is below the NLL (Northern Limit Line), the sea border that divides North and South Korea (Korea Times)

The Korea Times quotes S. Korean Lt. General Lee Hong-ki as saying, "This is a brutal provocation aimed at defenseless civilian areas. Our military will try its best to deter any further provocation by the North and not to aggravate the situation. But if the North makes additional provocation, we’ll sternly deal with it to protect our territory and the Northern Limit Line (NLL)."

Well, that's what the South Koreans said last spring after the North Koreans sank a South Korean warship Cheonan with a missile. They said that any new provocation would be met with retaliation. Now there's a new provocation, and the military will "try not to aggravate the situation."

The news reports that I read and heard indicate that this new attack by the North Koreans has been deeply shocking to the South Koreans. Many of them fear that something "very dark" is going on in the north. Many of them wonder when they'll have no choice but to strike back militarily. Some people are already demanding military retaliation, while others believe that any military retaliation would provoke full-scale war.

From the point of view of Generational Dynamics, we can only speculate what's going on in the north, based on the fact that both North and South Korea are well into a generational Crisis era.

The characteristics of a Crisis era, as we've already seen many times in the financial arena, is that things always turn out to be substantially worse than expected. This isn't magic - there's a good reason for it. For decades, the survivors of the previous crisis war (WW II in this case) take care of everything and adopt all the compromises necessary to make sure that nothing like that war occurs again. The main characteristic of a generational Crisis era is that the war survivors are all gone, and postwar generations (like America's Boomers and Generation-Xers) are in charge, and these people have no skills at compromise or even governing.

Over the years, the North Koreans have learned that provocations such as the sinking of the Cheonan are met with bluster and ineffectual sanctions. Thus, they feel that they can keep making such provocations, and they expect not to have to pay a price. At some point, they will be surprised to discover that there will be a very big price to pay.

The other characteristic of a generational Crisis era is self-delusion. I talk about this all the time in the financial arena, but it's equally true in the geopological arena.

One example that jumps to my mind is the American civil war. The story goes that in the first couple of battles, the ladies of Washington D.C. went out in their carriages to watch the goings on as a kind of sport. That Pollyannaish attitude was dispelled by the brutal, bloody Battle of Bull Run. The point is that when the South fired on Fort Sumter, they expected simply to capture Fort Sumter without paying any price for their action. What they got instead was an extremely bloody war that nobody had expected.

I've felt for a long time that the North Koreans believe that they have nothing to lose by a war with the South. They know that the 1950s Korean War ended in an armistice, and they know that they've paid no price for subsequent provocations. I have little doubt that in some file cabinet in Pyongyang there's plan that says they can capture Seoul overnight by sending a few hundred thousand N. Korean troops south across the border. They may even believe that once they've done that, the Americans will simply leave and let the Koreans work things out by themselves -- with the North Koreans running the show.

The South Koreans are also guilty of wishful thinking. JoongAng quotes one twitterer as saying, "I think North Korea can’t break out into a war at this moment because it is now getting ready for a power succession. A series of recent incidents - the sinking of the Cheonan, the revelation that it has uranium enriching centrifuges, and the sudden bombing on Yeonpyeong Island - are being done on behalf of the heir-apparent, Kim Jong-un, who has little achievements to boast of yet."

From the point of view of Generational Dynamics, North and South Korea are headed for a major new war of reunification. Like any crisis war, it will be extremely bloody on all sides, and in this crisis war, nuclear weapons will be used.

Euro in crisis as countries seem to be falling like dominoes

As we've written many times, there IS no solution to the global financial crisis. Each month there's less money in the world than there was the previous month, as hundreds of trillions of dollars of synthetic securities are dissolved, and the weakest entities are the first to go, as they start falling like dominoes.

On Tuesday, German Chancellor Angela Merkel said, "We are facing an exceptionally serious situation as far as the euro's situation is concerned," according to EU Observer.

She's concerned that, once again, Germany is going to have to bear the major cost of any bailout, and she sees more bailouts coming.

The financial tv pundits that discussed this issue on Tuesday were discussing the possibility that the entire euro currency might be dissolved. One person suggested that the euro would not be dissolved, but that some countries would leave the eurozone and return to their former national currencies. It wasn't clear what countries he had in mind.

There's good reason to be concerned. Greece was bailed out last May. Everybody knew, and I said many times, that the bailout would not work, and that Greece would have to default anyway. However, the bailout did calm the markets, and seemed to restore order.

The next domino was Ireland. The bailout negotiations are not completed, and there's some doubt that they will be completed. As one financial pundit said, now that they've been promised a bailout, why should they agree to ANY austerity program?

One thing's for sure: The promise of a bailout did nothing to calm the markets on Tuesday, according to Bloomberg. Yields (interest rates) on Ireland's bonds went up further into crisis levels, and yields on Spain's bonds jumped to a euro-era record. Yields on Portugal's bonds also surged to higher crisis levels.

One analyst is quoted as saying, "The markets currently have virtually zero confidence that the bailout in Ireland will solve the European crisis. With markets effectively in a position to dictate policy, the risk is that the credibility crisis shifts to more sizeable European Union countries and thereby poses a greater risk to the system as a whole."

I will admit, as I've admitted before, that these bailout and stimulus programs have postponed a real crisis far longer than I ever expected them to. But the dominoes keep falling, and I haven't heard a single analyst point to a reason to believe that there's any relief in sight. Things can only get worse, until a major panic brings forth a REAL crisis.

Additional links

The cholera epidemic in Haiti is spreading twice as fast as had been estimated and is likely to result in hundreds of thousands of cases in the coming months, the UN says. BBC

Portugal's two biggest public sector labor unions will be holding a general strike on Wednesday, bringing the country to a virtual halt, to protest austerity measures that the government is imposing in the hope of avoiding the need for a bailout. Reuters

Many retirees are splurging on credit card debt, assuming that they're going to die soon anyway, and won't have to pay it off. CNBC

(Comments: For reader comments, questions and discussion, see the 24-Nov-10 News -- South Korean civilians shelled by North Koreans thread of the Generational Dynamics forum. Comments may be posted anonymously.) (24-Nov-2010) Permanent Link
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23-Nov-10 News -- Ireland in chaos as euro crisis grows

Saudi Arabia facing a possible succession crisis

Ireland's prime minister defiant after bailout protests

Left-wing or communist riots and protests, reacting to austerity budgets, have been fairly frequent in countries across Europe, and now Ireland is no exception.

Dozens of protesters, led by left-wing opposition party Sinn Féin, confronted police and pushed into government buildings in Dublin, according to the Irish Times.

They were demanding the resignation of Taoiseach (Prime Minister) Brian Cowen, so that there would be new elections. The Green Party, part of Cowen's ruling coalition, said it will pull out of the government, according to Spiegel.

The expected austerity steps will be brutal -- cutting the budget by some $20 billion, cutting around 20,000 public sector jobs, raising taxes, reducing welfare.

And with 300,000 "ghost houses" -- unoccupied or partially finished homes left over from the real estate bubble -- there's worse to come.

However, Cowen is remaining defiant for the time being. He's refusing to call new elections until the austerity budget has passed the Parliament. Originally, the budget was supposed to be passed this week, but now it's been postponed, and with growing opposition to the austerity steps, it may be delayed further.

In the meantime, negotiations are still going on with the European Union, the European Central Bank (ECB) and the International Monetary Fund (IMF) on the bailout. The bailout is not a done deal, and there are still bitter negotiations to come over what Ireland will have to give up in return for the bailout.

Portugal and Spain are the next targets

The EU and Ireland were forced into bailout negotiations because Irish bond yields (interest rates) were going parabolic, at one point going briefly above 9%, as shown in the following chart from Spiegel:

Bond yields on PIIGS countries (Portugal, Ireland, Italy, Greece, Spain) and Germany last week <font face=Arial size=-2>(Source: Spiegel)</font>
Bond yields on PIIGS countries (Portugal, Ireland, Italy, Greece, Spain) and Germany last week (Source: Spiegel)

As you can see, Ireland was following the path that Greece followed last spring. Finally Greek bond yields exceeded 12%, threatening to put Greece into default, and causing a chain reaction around Europe. After the bailout in May, Greek bond yiekds fell below 8%, as you can see above, but are now approaching 12% again.

This weekend's announcement of bailout negotiations caused bond yields to fall slightly on Monday, but nothing as dramatic as what happened in May.

Theoretically, it doesn't matter now if Greek bond yields are above 12%, because Greece will not be selling any additional bonds on the open market. Instead, the bailout allows Greece to sell bonds to the EU for a much lower interest rate, around 5%.

Ireland's bailout plan, if it comes to fruition, will work the same way. So Ireland won't have to enter the open bond market for two or three years, if all goes as planned. The amount of the bailout is expected to be around 90 billion euros.

As you can see from the above chart, Portugal is almost exactly where Ireland is. And there's a great deal of fear that the yields on Spain's bonds could start rising to crisis levels.

Here are some snippets of things that I heard from various analysts on Monday:

Everybody is hoping that prosperity is just around the corner, and that the fabled V-shaped recovery will begin any day now, so that none of these debts will matter. From the point of view of Generational Dynamics that's impossible, for reasons I've stated many times.

In 2008, I posted the article "One, Two, Three ... Infinity," in which I compared to the ever-increasing government spending plans to a book by George Gamow that I read in school in the 1950s. My use of that particular phrase was to convey the idea that each new bailout or stimulus program would be larger than the last one. As each one failed, new and larger ones would be demanded, and this process would not be stopped except by a major financial collapse and crisis.

Now we see the same concept in a different way. Not only are the bailouts getting bigger, but the number of bailouts is growing, and the bailouts are spreading over a wider domain.

The situation is that Greece and Ireland will never be able to repay their bailouts, nor will any further bailed out countries. Europe will continue to "throw good money after bad," as the old saying goes, until a panic brings down the whole system.

Additional links

Hewlett-Packard will reconsider its investments in Ireland, if Ireland is forced to raise its 12.5% corporate income tax rate. Bloomberg

The mysterious Stuxnet computer worm that was suspected of targeting Iran's nuclear installations is now believed to work by making quick changes in the rotational speed of the motors in centrifuges used to enrich uranium. Rapid changes can cause them to blow apart. NY Times

Relations between Iran and Russia are souring, as Russia has suspended the planned delivery of the S-300 missile system to Iran. Jamestown Foundation

As Saudi Arabia's 80+ year old leaders show ill health, a succession crisis may be coming soon. My own expectation is that a younger generation of leaders in Saudi Arabia would be far more confrontational with the United States, Israel and Iran, thus pushing Iran and the United States closer together. Washington Institute

The U.S. military is sending heavily armored battle tanks to Afghanistan for the first time, signalling a further escalation in the aggressive tactics that have been employed by American forces this fall to attack the Taliban. Washington Post

Japan's justice minister was forced to resign on Monday because of a joke that he told last week. He said that when he was facing questions from members of parliament, he only needed to remember two comments: "I do not comment on specific cases," and "We are dealing with the matter appropriately based on law and evidence." Associated Press

Think you've read the worst about foreclosures? Read this. Sacramento Bee

(Comments: For reader comments, questions and discussion, see the 23-Nov-10 News -- Ireland in chaos as euro crisis grows thread of the Generational Dynamics forum. Comments may be posted anonymously.) (23-Nov-2010) Permanent Link
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22-Nov-10 News -- Sunni Muslim population growth exacerbates food crisis

Ireland requests $130 billion bailout from EU

Sunni Muslim population growth exacerbates food crisis

There are many factors contributing to the worldwide surge in food prices to crisis levels that I reported on yesterday.

The Green Revolution led to huge increases in food production in the 1960s and 1970s, but for some reason, many people believe that the Green Revolution is some magic potion that will last forever. In many ways it was a one shot deal -- improve crop yields by using a lot more water, fertilizer and insecticides. Since then, water has gotten scarcer, and fertilizer and insecticides have been overused.

Here's a graph of world wheat production since 1961 -- total and per capita from FAOStat:

World supply of wheat, total and per capita, 1961-2007
World supply of wheat, total and per capita, 1961-2007

As you can see, total wheat production (the thick red line) has been growing continually since 1961, but you can also see that the rate of growth began to level off around 1990. If you look at the blue line, you can see that the wheat total per capita today is about 20% higher than it was in 1961, but that it's been in a declining trend. That's a very good reason why food prices have been increasing sharply in the last decade.

Many people are aware of declining birth rates in America and Europe, and believe that world population is either leveling off or declining. Actually, population growth has slowed in Western countries, but has been very high in Sunni Muslim countries:

                Population Growth Rate
    Western countries      Other non-Muslim countries
    -----------------------  -----------------------
    United States     0.97%  Russia           -0.47%
    United Kingdom    0.28%  Vietnam           1.10%
    France            0.53%  China             0.49%
    Germany          -0.06%  Thailand          0.60%
    Israel            1.63%  India             1.38%
    Spain             0.05%  Mongolia          1.50%
    South Africa     -0.05%  Korea, North      0.39%
    Japan            -0.24%  Korea, South      0.26%
                             Iran(Shia Muslim) 0.94%
       Sunni Muslim (especially Arab) countries
    -----------------------  -----------------------
    Indonesia         1.10%  Egypt             2.00%
    Uzbekistan        0.94%  West Bank         2.13%
    Turkmenistan      1.14%  Gaza Strip        3.29%
    Syria             1.95%  Pakistan          1.51%
    Saudi Arabia      1.75%  Kuwait            3.50%
    Iraq              2.45%  United Arab Emir  3.56%
    Libya             2.12%  Yemen             2.71%

Source: CIA Fact Book

Over the years, I've asked several knowledgeable Muslim experts for an explanation of the high birth rate in Sunni Muslim countries, which is apparently little known, even among Muslims, but have received none.

This is a remarkable phenomenon. Most of the Middle East was in a generational Awakening era in the 1940s, one generation past the cataclysmic collapse of the Ottoman Empire. The most likely explanation for the birth rate is that it became "common wisdom" among Sunni Muslims at that time to develop a higher birth rate, as the way of rebuilding the Muslim empire that had been so powerful for six centuries. This would be similar to the "common wisdom" decision made by people during the West's generational Awakening era (in the 1960s-70s) that a lower birth rate was desirable to save the planet.

At any rate, the imbalances in population growth in Sunni Muslim countries will have the effect of food shortages because of distribution issues. Even if there's enough food in the world to feed everyone, it's meaningless unless the food can be distributed to everyone, and that's becoming more and more difficult.

On this web site I write about many sensitive subjects -- ethnicity, religion, war, terrorism, and so forth. But over the years, my articles on the Malthus effect and the food crisis have generated more hysterical responses than the others. It's very strange, but here's what I think: One can point to religions and ideologies that promote war, ethnic cleansing, terrorism, etc., but I'm not aware of any religion or ideology that promotes acceptance of the Malthus effect.

In fact, the Malthus effect is contrary to the tenets of every religion and ideology, since acceptance of the Malthus effect would make the religion or ideology valueless. In fact, maybe that's why there are so many different religions and ideologies. Each one has a different solution for explaining and defeating the Malthus effect, and each one fails, because there is no way to defeat the simple fact that, in the long run, the population grows faster than the food supply, and that can only lead to wars of extermination. That's the conclusion of Generational Dynamics, which is analytical, and free of any ideology.

Additional links

The stunning announcement that North Korea is making rapid advances in enriching uranium, presumably for nuclear weapons, is beginning to generate reactions. Admiral Mike Mullen said that China, North Korea's closest ally, would have to influence the situation. Reuters

Two weeks ago, Ireland was saying that there were no talks going on with the EU to bail out Ireland. One week ago, Ireland said there were talks, but no bail out was needed or desired. On Sunday, Ireland requested something like $130 billion in aid from the European Union. Ireland will draw on the trillion dollar fund set up by the EU and IMF in May as part of the Greek bailout. Bloomberg

The US-backed plan for a new 90-day moratorium on settlement construction is in limbo. Apparently the current plan being discussed is that the U.S. will sell the Israelis a squadron of F-35 stealth jet fighters in return for agreeing to a 90-day moratorium on new settlements in the West Bank. However, the Obama administration has not yet put this agreement into writing. Haaretz

(Comments: For reader comments, questions and discussion, see the 22-Nov-10 News -- Sunni Muslim population growth exacerbates food crisis thread of the Generational Dynamics forum. Comments may be posted anonymously.) (22-Nov-2010) Permanent Link
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21-Nov-10 News -- Food prices skyrocket to 2008 crisis levels

North Korea building vast new nuclear facility

Global food prices skyrocket to 2008 crisis levels

FAO Food Price Index versus CPI, 1990 to 2010
FAO Food Price Index versus CPI, 1990 to 2010

The United Nations Food and Agriculture Organization (FAO) predicts that there will be a major food crisis in 2011, unless food production is increased substantially. The analysis appears in the organization's biannual "Food Outlook Report."

Food prices spiked to crisis levels in 2008, sparking food riots around the world. FAO's food price index increased to 197 in October, higher than the 2008 level, although the average for the entire year so far is slightly lower.

According to the FAO:

"Contrary to earlier predictions, world cereal production is now forecast to contract by two percent rather than to expand by 1.2 percent as anticipated in June. Unexpected supply shortfalls due to unfavourable weather events were responsible for this change in direction, according to the report.

Global cereal stocks are forecast to decline sharply and Food Outlook makes a strong call for production to be stepped up to replenish inventories. World cereals stocks are anticipated to shrink by seven percent according to FAO, with barley plunging 35 percent, maize 12 percent and wheat 10 percent.

Only rice reserves are foreseen to increase, by six percent according to the report."

From the point of view of Generational Dynamics, what we're seeing is what I call the "Malthus effect," a continuing increase in the price of food as the population grows faster than the supply of food. (See "Food: Green revolution v Malthus effect.")

As you can see from the above graph, food prices were steady or declining until 2002. Since 2002, food prices have been surging much faster than inflation.

The survivors of World War II (GI and Silent generations) were well aware of the horrors of famine and starvation that occurred during the war, and they developed the Green Revolution to make sure that everyone in the world would be fed.

It's really not surprising that the surge in food prices occurred in the same time frame as the tech, real estate and credit bubbles that have developed into the current global financial crisis. The same generational greed and nihilism that led to the debauched use of credit has also led to the collapse of the Green Revolution.

Additional links

North Korea has revealed that it's rapidly building a vast new facility to enrich uranium that can be used to build a far more powerful type of atomic bomb. NY Times

Once upon a time, the war in Afghanistan was supposed to end in 2011. On Saturday, NATO officials in Lisbon announced that the new end date is 2014. Maybe. VOA

Bailout discussions for Ireland are continuing this weekend, where the hottest topic is whether the EU officials are going to force the Irish to raise their 12.5% corporate income tax rate. French President Nicolas Sarkozy said that he expected Ireland to raise that rate, but that it would not be a condition for a bailout. At any rate, no decision will be made until after Tuesday, when Ireland's cabinet will publish its four-year austerity budget plan. The unpopularity of the austerity measures is likely to cause the collapse of prime minister Brian Cowen's ruling coalition, and force a new election. Reuters

(Comments: For reader comments, questions and discussion, see the 21-Nov-10 News -- Food prices skyrocket to 2008 crisis levels thread of the Generational Dynamics forum. Comments may be posted anonymously.) (21-Nov-2010) Permanent Link
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20-Nov-10 News -- Muslim / Russia xenophobia grows with Caucasus terrorism

A combination of realism, hysteria, paranoia, and pathological hatred.

Muslim / Russia xenophobia grows with Caucasus terrorism

Reports this year indicate that the level of terrorist violence in Russia's southern provinces (the northern Caucasus) has been growing rapidly in 2010, especially in Dagestan, leading some Russian officials to wonder if they're losing the war in the Caucasus completely.

Dagestan's local population has been increasingly Muslim each year, according to an analysis by the Jamestown Foundation. This has even caused a split in the Siloviki -- Russia's army and security forces conducting operations against the militants in the Caucasus -- with some of them siding with the militants.

From the point of view of Generational Dynamics, the increasing tension in the Caucasus is not surprising. For the last millennium, one of the world's great fault lines has been between the Orthodox Christian civilization, centered in Moscow, and the Sunni Muslim civilization, centered in Istanbul. This fault line has led to many generational crisis wars, with some of the bloodiest occurring in the Caucasus.

Northern Caucasus -- Russia's southern provinces - Sochi 2014 logo at left is site of 2014 winter Olympics
Northern Caucasus -- Russia's southern provinces - Sochi 2014 logo at left is site of 2014 winter Olympics

Analyst Paul Goble, writing for Eurasia Review, has found that intellectual leaders in Russia's Muslim community have been considering the question of what the sources of Islamophobia are in Russia.

This is kind of a strange question, since Islamist terrorists have been perpetrating terrorist attacks since the 1990s, and so I'm tempted to say that it could only take an intellectual to ask such a dumb question. Still, it's an interesting analysis. The intellectuals that Goble quotes give three reasons:

I've written many articles about attitudes related to xenophobia in the West (see, for example, "American xenophobia on the Left and on the Right"). All of these attitudes are a mixture of realism, hysteria, paranoia and pathological hatred.

I like the phrase "looking for ways." From the point of view of Generational Dynamics, these xenophobic attitudes increase during generational Crisis eras. During the 1960s-90s, when WW II survivors (GI and Silent generations) were in charge, people were "looking for ways" to get along with one another and to like one another, because they realized how easily xenophobia could slide into war.

Today, many people are "looking for ways" to dislike one another. This creates a vicious cycle when, for example, ethnic or religious discrimination leads to terrorist violence which leads to more discrimination, and there's no will to break the cycle. From the point of view of Generational Dynamics, this is how world wars begin.

(Comments: For reader comments, questions and discussion, see the 20-Nov-10 News -- Muslim / Russia xenophobia grows with Caucasus terrorism thread of the Generational Dynamics forum. Comments may be posted anonymously.) (20-Nov-2010) Permanent Link
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19-Nov-10 News -- China accused of hijacking internet data

Obama's offer to Israel may have been a hoax

China accused of hijacking internet data

China is blasting a report to the US Congress accusing China of hijacking massive amounts of internet traffic for a brief period earlier this year, including traffic to and from US military and government sites.

The Chinese government publication Global Times quotes experts as calling the accusation "ridiculous and unreasonable," pointing out that the United States, with the world's most advanced technology, controls the majority of the digital information flow.

The 316 page report on the national security implications of the trade and economic relationships between the U.S. and China was written by the U.S.-China Economic and Security Review Commission and transmitted to Congress on Thursday. Topics include economics and trade, national defense and cyberwar, energy and environment, and censorship.

The report lists two major incidents where it appears that China hijacked a large part of the internet:

If we now go back to China's statement in Global Times, it looks very flimsy and defensive. It points out that "the United States, with the world's most advanced technology, controls the majority of the digital information flow." Well, what does that have to do with? They're not denying that the data was hijacked, they're not saying it was an accident, and they're not saying that they didn't capture some of it for espionage or other purposes.

As we've said before, cyber warfare is becoming increasingly prevalent. The military is now treating cyber as the "fifth domain," after the other domains -- land, sea, air and space. The bad news is that very few people in the U.S. military are trained to deal with this kind of warfare, and the other bad news is that the Chinese appear to be developing and testing out techniques to win with it.

Additional links

Irish Daily Star
Irish Daily Star

Ireland is finally playing the game. In attempt to calm investor fears and reassure the public, Irish officials are saying that all Irish bank deposits are safe, and that Ireland can expect to receive "tens of billions" in bailout loans when bitter negotiations over Ireland's sovereignty are completed. A particular issue will be Ireland's low 12.5% corporate income tax, which the country has used to lure many American companies to build plants there. This upset other EU nations, because it put them at a competitive disadvantage. Now they're going to insist that Ireland raise the corporate income tax and give up that advantage. Bloomberg

According to the Debka subscriber-only newsletter, forwarded to me by a subscriber, the recent deal that the Obama administration offered to Israeli prime minister Benjamin Netanyahu was a hoax. (See "15-Nov-10 News -- Mideast peace talks take on a comic flavor.") Under this deal, the US would give Israel a free squadron of 20 F-35 stealth fighter jets in exchange for a moratorium on settlements in the West Bank, excluding East Jerusalem. Well, it seems that no such offer was made by the Obama administration, and Netanyahu presented it to his cabinet anyway, in the hope that if they accepted it, then he could convince Obama to go along with it. Debka

Phrases like "We have the very best auditors" and "our team" are signs that a CEO is lying. NPR. But why just CEOs? Just listen to Obama or any other politician in Washington and you can tell they're always lying as well.

There are signs that India's Maoist terrorists, known as Naxalites, are linking up with Lashkar-e-Toiba (LeT) and other Pakistani jihadi terrorist groups, but evidence to support the linkup is hard to find. Stratfor (Paragraph updated - 19-Nov)

Terrorism expert Bruce Riedel says that a jihadist coup in Pakistan is a real possibility. The most likely scenario is a coup from inside the military by jihadist sympathizers. Spiegel

Burma's Aung San Suu Kyi may be gaining support among the younger generation of soldiers in Burma's army. Several hundred lower-ranked soldiers from two Burmese army divisions traveled to Rangoon last week to witness the release of Suu Kyi from her decades of house arrest. BBC

An analysis of the geopolitics of northern Mexico shows major differences between the three northern provinces -- Baja California, Sierra Madres, and Rio Grande Basin. Foreign Policy Research Institute

(Comments: For reader comments, questions and discussion, see the 19-Nov-10 News -- China accused of hijacking internet data thread of the Generational Dynamics forum. Comments may be posted anonymously.) (19-Nov-2010) Permanent Link
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18-Nov-10 News -- Lessons learned from from financial crisis so far

The worst is yet to come

Lessons learned from from financial crisis so far

The worst is yet to come

On Bloomberg TV on Wednesday, Neel Kashkari, Pimco Head of New Investment Initiatives, was asked what lessons have been learned so far in the American and European financial crises, and what advice he'd give the Europeans now (my transcription):

"The lesson that we learned is that we're always behind, always trying to play catch up, always hoping that the crisis won't be as bad as we feared, and it's always been worse.

So I see that happening in Europe now. It's spreading from Greece to Ireland -- people are very afraid that it spreads to Portugal to Spain, eventually, and that's what the EU is so focused on - preventing it from spreading.

My advice to them would be - jump ahead. Look ahead 2-3 years . What is this likely going to look like in 2-3 years, and get to that solution as quickly as you can, because the band-aids that they're putting on them right now are buying them some time, but unless they deal with the solvency issue, it's not really a solution."

This is a very interesting proposal because it makes so much apparent common sense and yet is impossible.

From the point of view of Generational Dynamics, there has already been a massive change in attitudes and behaviors. Boomers and Generation-Xers who were risk-ignorant in the early 2000s bubble have been badly burned, and will remain extremely risk-averse for decades, as happened after the 1930s. Policymakers don't understand this, and think that with the right political speech or the right policy, the bubble mentality will return.

To make matters worse, there's less money in the world every week than there was the week before, because the hundreds of trillions of dollars of synthetic securities that were created during the bubble are still being dissolved, causing a massive deflationary spiral.

So if the Europeans try to take Kashkari's advice and look ahead 2-3 years, what they'll see is a much bleaker situation. As Kashkari himself pointed out, politicians always think that the crisis won't be as bad as feared, but it's always been worse. This is the nature of a generational Crisis era.

If you want to understand what's going on in the world today, one of the best ways is to read "The bubble that broke the world," a 1932 book by Garet Garrett. He writes,

"Mass delusions are not rare. They salt the human story. The hallucinatory types are well known; so also is the sudden variation called mania, generally localized, like the tulip mania in Holland many years ago or the common-stock mania of a recent time in Wall Street. But a delusion affecting the mentality of the entire world at one time was hitherto unknown. All our experience with it is original."

Garrett describes exactly how the mass delusion unfolded in the 1920s and early 1930s, especially the interactions between the Americans, the Germans, the French and the British. This kind of account is extremely valuable for a Generational Dynamics analysis because it shows what people were thinking at the time, unfiltered by later ideologies.

The same kind of mass delusion occurred during the real estate and credit bubbles, and is still going on today. This can be best understood by reading Garrett's book. You have to make some adjustments, such as the fact that today America is a debtor nation and China is a creditor nation. This book provides a great deal of insight into how events will be unfolding for the next few years.

From the point of view of Generational Dynamics, the worst part of the global financial crisis has not yet occurred. What must still happen is a major international panic, like the crash that occurred on October 24, 1929, that will be remembered for decades. This panic will be necessary to unify policymakers and force them to make real changes.

It's impossible to predict when and where that panic will begin, but as we see officials in Europe dithering around with Ireland, Greece and Portugal, it seems more and more likely that it will start in Europe.

(Comments: For reader comments, questions and discussion, see the 18-Nov-10 News -- Lessons learned from from financial crisis so far thread of the Generational Dynamics forum. Comments may be posted anonymously.) (18-Nov-2010) Permanent Link
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17-Nov-10 News -- Anger at Germany boils over

Revulsion of the bubble

Anger at Germany boils over

That's the headline in an article that appeared on Tuesday in the Financial Times (Access):

"The drive by Angela Merkel, the German chancellor, to rewrite the European Union’s treaties to set up a new bail-out system for future Greek-like collapses – and her insistence that private investors bear more of the cost of such rescues – was quietly resented when she bulldozed it through last month’s summit of EU leaders.

But as bond markets have reacted and plummeted in the weeks since, that resentment has begun to boil over, with increasing accusations that Ms Merkel has put many of her fellow eurozone leaders in untenable positions in order to reinforce her own standing with German taxpayers.

“They’re unprintable at times,” said Daniel Gros, director of the Brussels-based Centre for European Policy Studies, of the angry remarks he has heard aimed towards Berlin.

German officials insist their campaign to get private bondholders to shoulder more bail-out costs is not just about domestic considerations. The government is more concerned that the current system – which condemns well-managed states to bailing out badly-managed ones – is unsustainable.

But even some of those well-managed states have expressed anger at German tactics. Countries such as the Netherlands, Finland and Austria, all normally allies of Germany in economic governance issues, have raised questions about Berlin’s behaviour.

Anger first arose after Berlin cut a deal in mid-October with France over the new bail-out system, even as it was working closely on economic reform issues with several of its allies among the northern, fiscally prudent caucus.

Ever since the deal was struck, Germany has slowly lost support for its hardline stance on the new rescue mechanism and has been forced to back away from its original ideas about setting strict rules for private investors’ role in a bail-out “ex-ante”, or before a rescue even occurs.

As we reported yesterday, Merkel made this proposal because she doesn't want Germany to be stuck with paying for an Ireland bailout, as it had to pay for a Greece bailout in May. Still, it's laughable to say that German caused the current crisis, as if merely making a proposal was enough to cause market panic, while the continuing collapse of Greece's economy has nothing to do with it.

So everyone is furious at the Germans, and now the Germans are still furious at the Greeks, according to an article in the Guardian, quoting German media:

"That Germany will have to step in [to bail out Ireland] is now not in much doubt, despite denials from Ireland that it needs the help. The question being asked is precisely how much of the burden Germany would be expected to bear.

German taxpayers are still smarting from the multibillion-euro Greek bailout in May, which led to ugly headlines in the mass-market Bild about excessively profligate Greeks and how frustrated Germans were cancelling their holidays to Crete in protest at having to pay for their fellow Europeans' unchecked excesses.

Six months on, anger towards Ireland is not yet as acute, but there is growing unease about the idea of Germany having to pay yet again for a fellow European country, particularly one whose per capita annual income is around €34,000 – more than Germany's €30,000.

"The poor Germans are going to have to feed the rich debtors," wrote Die Welt, in an analysis whose acerbic undertones were only thinly disguised."

Now it turns out that the Austrians are furious at the Greeks as well. As we reported yesterday, Greece's budget situation is much worse than previously estimated, and Greece is violating the terms of the bailout agreement. So now the Austrians don't want to pay their share of the next bailout payment, according to Reuters:

"Greece has not fulfilled commitments for its European Union-backed aid package, Austrian Finance Minister Josef Proell said on Tuesday, warning that his country had not yet submitted its contribution for December. ...

Speaking ahead of a meeting of EU ministers in Brussels, Proell said Greece had not kept its promise to get its finances in order and that Austria's 190 million euro contribution was not automatic. ...

"If this is clear and credible then we will have a new set of data," he said according to remarks distributed by his office.

"From the Austrian point of view, there is no reason to release the (aid) contribution in December with the (Greek) numbers as they are at present," he said."

The article points out that the Austrians later backtracked somewhat on their threat, but there's no doubt that the anger is there.

From the point of view of Generational Dynamics, the world is headed for a major financial crisis, and it appears more and more that it's going to be centered in Europe.

The Germans do NOT want to bail out Ireland or Greece (again) or Portugal or Spain, while the other European nations DO want Germany to bail those countries out, since Germany has the strongest economy, and everyone thinks that the Germans are rich.

Revulsion of the bubble

Most people are aware that the stock market has been falling briskly in the week, but other things have been happening as well that are worth noticing.

In particular, prices for US Treasury bonds have been falling, and yields (interest rates) have been rising. (As with most bonds, the price and the yield move inversely.)

This is a great surprise. The Fed has already begun purchasing Treasury bonds, as part of the quantitative easing ("QE2") program that was announced last week. What SHOULD happen is that the large Fed purchase should RAISE the price of bonds (by the law of supply and demand), and yields should go down. So what's actually happening is the OPPOSITE of what should happen.

What this means is that there's a huge selloff of Treasuries by investors. Now, or course, one week doesn't make a trend, and in fact, Treasury prices rose slightly on Tuesday, though not nearly enough to offset the previous week's losses.

Why would investors be selling Treasuries? We can only speculate, but perhaps they believe that the U.S. Treasury is going to default. And why not? It's widely expected that Ireland and Greece will default, so why not the U.S.?

Yeah, yeah, I know - the U.S. Government can "print" more money. The whole generational point, however, is that as the Boomers and Generation-Xers become more risk-averse, they're less willing to try dangerous experiments like "printing money."

Higgenbotham is a regular contributor to the Generational Dynamics forum. He is a trader and a scholar who has studied and analyzed how bubbles form and then burst, including the Panic of 1857, the South Sea Bubble, the Tulipomania bubble, even going back to the 1340s collapse of the Florentine banks (Peruzzi, Bardi, etc.).

What he's found is that there's a point when the population develops a feeling of "revulsion of the bubble." At this point, people who had previously gone along with policies that created the bubble now blame those policies and, in doing so, cause the bubble to burst more quickly, causing a crash.

As evidence that revulsion of the bubble is occurring right now, Higgenbotham points to the harsh national and international backlash against Fed chairman Ben Bernanke and the whole quantitative easing proposal that was announced last week. As Higgenbotham points out, there seems to be an actual "revulsion" growing against the idea of putting the country into another trillion dollars in debt, and this is a major change in attitude.

If Treasury bond prices continue to fall, as they have in the last week, then it would be signaling a strong deflationary trend. It would indicate that the dollary currency is strengthening, as investors more money out of Treasuries and into other dollar-denominated assets. Thus, in the past week, we've seen the dollar strength and, along with it, decreases of prices of commodities, including gold.

If Higgenbotham is correct, then this is a time of great danger for investors, since the stock market may be headed for a major correction or a crash.

(Comments: For reader comments, questions and discussion, see the 17-Nov-10 News -- Anger at Germany boils over thread of the Generational Dynamics forum. Comments may be posted anonymously.) (17-Nov-2010) Permanent Link
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16-Nov-10 News -- Europe speeds toward new financial crisis

Cholera epidemic in Haiti triggers anti-UN violence

Europe speeds toward new financial crisis over Ireland, Greece and Portgual

I really had to laugh on Monday when I heard the news report that Irish officials have finally admitted that they're in bailout talks with European Union officials. They've been denying it for days, and it's been pretty obvious all along that the politicians were lying. But I can't take any credit for figuring that out, because anyone with half a brain could tell. These guys are getting so predictable that you can almost predict which lie they'll tell next.

The narrative that we've been hearing the last few days was that Ireland wasn't asking for a bailout, but that the Europeans were prepared to offer a bailout if asked.

By Monday, the narrative was that the Europeans really wanted to help the Irish, but that the Irish were a proud people and that they preferred to get through this crisis by themselves, without having to take charity from the EU.

However, a different story is emerging, according to Ambrose Evans-Pritchard, reporting for the Telegraph. What seems at first to be the proud Irish people fighting for honor and country turns out to be negotiating gambit over monetary terms.

EU officials are furious at Ireland for refusing a financial rescue. Why? Because the refusal is panicking investors further, and the contagion is spilling over to Spain's bonds and Portugal's bonds, whose yields (interest rates) are beginning to approach crisis levels themselves.

So the reasoning is that Ireland is at fault for harming Spain and Portugal by not asking for aid. The anger reflects suspicion, according to the article, "that Ireland is holding the eurozone to ransom, allowing the crisis to fester until it extracts a pledge from EU officials that it will not suffer a loss of economic sovereignty."

So panic is setting in, and tempers are flaring. Things are getting messy.

There's new anger directed at Greece, as well. Eurostat, the European statistical agency, published a report on Monday that confirmed a widely circulated story that Greece's debt situation was much worse than previously understood, according to the Guardian. Six months ago, at the time of the $150 billion bailout, it was thought that Greece's 2009 budget deficit was 13.6% of its GDP. The new figure is 15.4% of GDP, making their debt ratio the highest of all the European Union states.

Greece has been experiencing violent riots in response to the austerity program that Prime minister George Papandreou announced last spring, but it was thought that the pain was worth it because Greece would be able to escape from debt by 2015 or so. But the new figures indicate that that goal is impossible. Furthermore, the new figures mean that Greece is violating the terms of the bailout, and they put into question whether Greece should be allowed to receive the next installment of the bailout aid, which they're due to receive this month.

There's one more very important target of widespread anger: Chancellor Angela Merkel of Germany. The Germans HATED bailing out the Greeks because, as Europe's strongest economy, Germany had to bear the greatest burden in the bailout. Furthermore, the penny-pinching Germans were furious at having to bail out the profligate Greeks, who had lied about their debt for years.

So now the time is approaching when Germany may be asked to help bail out Ireland -- and Greece and Portugal as well. This has led Merkel to take a tough stance on euro bailouts, according to Spiegel.

Merkel is demanding that the rules change so that profligate nations should not be bailed out by other nations; instead, they should be bailed out by the investors who hold the nation's debt. In other words, Merkel is saying that Ireland and Greece should go into default, and restructure the debt so that investors get only a fraction on the dollar.

Greek Prime Minister George Papandreou accused Merkel on Monday of worsening the crisis, because her remarks had pushed up bond yields. "This could create a self-fulfilling prophecy ... This could break backs. This could force economies towards bankruptcy," he said. Others joined in the criticism of Merkel.

So investors are panicking, politicians are getting angry, and a major crisis is gathering steam. We should be seeing some real chaos during the next 3-4 weeks. Merry Christmas!

Additional links

A cholera epidemic is spreading rapidly across Haiti, in the aftermath of a recent hurricane, and a major earthquake in January. Over 1,000 people have died from the disease. Violent Haitian protesters are blaming the United Nations peacekeepers for having introduced the disease, and are particularly claiming, without proof, that the Nepalese contingent of the peacekeeping forces are to blame. About a dozen people have been hospitalized from injuries caused by the violence. Haiti is well into a generational Crisis era, and so it's not inconceivable that this violence could spiral into a civil war. AFP

Turkey begins its celebration of the Muslim festival of Eid al-Adha on Tuesday. The festival of sacrifice is traditionally marked by families killing sheep or cattle. But the price of meat rising to an alarming levels over the past few weeks, with the price of a single animal going as high as $2000. So there will be far fewer animal sacrifices this year. VOA

Russia is ready to cooperate with NATO in several areas, including the joint European anti-missile shield and the war in Afghanistan. Voice of Russia

(Comments: For reader comments, questions and discussion, see the 16-Nov-10 News -- Europe speeds toward new financial crisis thread of the Generational Dynamics forum. Comments may be posted anonymously.) (16-Nov-2010) Permanent Link
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15-Nov-10 News -- Mideast peace talks take on a comic flavor

Violence continues across cities in Bangladesh

Mideast peace talks take on a comic flavor

It could be a comedy Broadway play if the consequences weren't so serious, but it's increasingly obvious that everybody involved in the so-called Mideast "peace process" -- with the possible exception of the Obama administration -- does not really want to change the status quo.

Hillary Rodham Clinton and Benjamin Netanyahu (AP)
Hillary Rodham Clinton and Benjamin Netanyahu (AP)

The comedy began in September with a laugh line by former Sen. George Mitchell, who is President Obama's envoy to the Mideast, who told reporters that new negotiations were starting with the goal to end the Middle East conflict "for all time."

The background to this hilarity was that Israel's 10 month moratorium on new West Bank settlements was about to expire on September 26. So the Administration rushed together a meeting of the parties in Washington on September 2, to get the ball rolling on ending the Mideast conflict for all time.

Palestinian Authority president Mahmoud Abbas said that the peace talks would cease unless Israel agreed to extend the moratorium, but by mid-September Abbas was playing the straight man to groups of Jewish settlers who promised to "declare war" on Israeli prime minister Benjamin Netanyahu if he tried to extend the moratorium, according to the Jerusalem Post. Next thing you know, Haaretz was saying that U.S. diplomats were "concerned" that the Mideast peace talks were about to collapse.

In the next scene, Abbas took center stage, as September 26 came and went, with Netanyahu saying that the moratorium would not be extended. As the Americans were frantically running around to compromise, Abbas said, "I cannot go on ruling, and I need to rest; I'm at the age where I can't continue to lead." On a plane trip, he said to a reporter, "This is the last time you are traveling with me," implying that he was about to resign.

And then Abbas said that he will "make historic decisions" during the meeting of the Arab League that would come on the following Monday, a week after the moratorium ended.

Well, then Monday came, and the Arab League meeting was postponed two days until Wednesday at Egypt's request, to give the US Administration a chance to work a compromise.

Then the Arab League meeting was postponed until Friday.

Then Friday came, and everyone waited for Abbas' announcement of a historic decision and ... nothing! There was no news of any announcement by Abbas. In fact, there was almost no news at all. There were just a few leaks that some Arab leaders wanted the peace talks to continue and others wanted the peace talks to fail.

One could barely recover from the laughter, when a whole new scene began.

Abbas warned that there would be a rise of extremism if the peace talks collapse. Then the Palestinian leadership threatened to request from the United Nations an international mandate to create a Palestinian state, based on Israel's pre-1967 borders. Then the Palestinians' lead negotiator, Saeb Erekat, said that the Palestinians had not abandoned the peace process, and would give the Obama administration time to bring about a compromise solution.

This weekend, a whole new act in this comedy began, as Obama has made what Haaretz calls an offer that Netanyahu cannot refuse.

The Administration has offered Israel a whole list of goodies, in exchange for resuming the settlement moratorium for just three months.

One set of goodies was a delight to the top officers in Israel's military: A free squadron of 20 F-35 stealth fighter jets worth $2.75 billion, according to the Jerusalem Post.

The second set of goodies is a promise to veto anti-Israel proposals raised in the U.N. Security Council during the next year, including the above mentioned proposal to seek an international mandate for a Palestinian state.

However, the proposal may be dead already. The LA Times reports that Netanyahu presented the proposal to his cabinet on Sunday without taking a vote, for fear that the proposal would be rejected.

The objections may be even stronger on the Palestinian side. There's a 90-day settlement moratorium included within the proposal, and the moratorium would apply to the West Bank. But it turns out that the moratorium would not apply to East Jerusalem, a particular demand of the Palestinians.

Chief Palestinian negotiator Saeb Erekat reacted harshly to this. According to Haaretz, Erekat told Al-Jazeera tv that the moratorium must be extended to East Jerusalem, and he repeated his threat to ask the United Nations for a mandate. However, a final decision won't be made until -- wait for it! -- the next Arab League meeting.

We'll have to wait until tomorrow or the next day to see the next scene of this comedy, but it's all quite remarkable. We live in a time where the world goes to extraordinary lengths to keep things from changing. Whether it's a proposal for hundreds of billions of dollars in quantitative easing, or a proposal to continue meaningless peace talks, today's politicians have a remarkable ability to "kick the can down the road," to apply a palliative to problems that will only allow them to get worse.

From the point of view of Generational Dynamics, nothing has changed in the Mideast since I made my first major prediction on this subject in 2003. (See "Mideast Roadmap - Will it bring peace?") There is no chance of a lasting peace deal because Arabs and Jews will be re-fighting the genocidal war that they fought in 1948, after the partitioning of Palestine and the creation of the state of Israel.

It's really hard to believe that there's anyone left who thinks that a peace agreement leading to a two-state Mideast solution is conceivable at all, let alone in 90 days. What's most likely is that all the parties to the Mideast negotiations are fully aware that the Mideast is headed inexorably for war, and each one wants to position himself so he can't be blamed.

Additional links

Police and opposition activists in Bangladesh fought pitched battles in the capital city Dhaka and other cities across the country as a nationwide strike called by the main opposition party brought the country to a standstill. More than 200 have been injured, and nearly 300 have been arrested. There's no chance of a full-scale civil war, as Bangladesh is in the middle of a generational Awakening era, 29 years after bloody war that created Bangladesh out of the former East Pakistan. Al-Jazeera

China has been continuing to withhold exports of rare earth elements to Japan, but now Japan's Trade Minister has met with the Chinese counterpart, and reports hopefully that "this will be resolved soon," and that China will accelerate exports of the elements. Bloomberg

Ireland is in talks with European Union officials about a possible bailout of Ireland's debt, and at the same time, Ireland denies that a bailout is being considered. However, there was no major announcement on Sunday, as some had anticipated. The discussions will continue at the Brussels meeting of euro region finance ministers that begins on Monday evening. Bloomberg

In a further effort to cool China's real estate bubble,China's four biggest banks will not issue any new loans to property developers for the rest of the year. Bloomberg

(Comments: For reader comments, questions and discussion, see the 15-Nov-10 News -- Mideast peace talks take on a comic flavor thread of the Generational Dynamics forum. Comments may be posted anonymously.) (15-Nov-2010) Permanent Link
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14-Nov-10 News -- EU Ministers are thinking about a bailout of Ireland

Mideast negotiators are thinking about a new peace proposal

EU Ministers are thinking about a bailout of Ireland

European Union ministers are spending the weekend deliberating whether to promise Ireland a European bailout, according to Financial Times (Access).

As we've been reporting, investors seem to be panic-selling Ireland's bonds, causing an increase in yields (interest rates) on ten-year bonds to exceed 9% on Thursday. By comparison, yields on German 10-year bonds are below 3%. Furthermore, the Europeans are experiencing "debt contagion," meaning that bond yields for Spain and Portugal are also rising.

The ministers hope that if they issue the right kind of magic statement, then the panic selling will stop, and yields will start falling again.

This is the same dance that we went through with Greece last spring. The EU would issue one silly statement after another expressing confidence, and every once in a while announces a non-bailout bailout. This means that they said that they'll come to Greece's aid as soon as it's necessary, and that all investors should be supremely confident of that.

Now the same thing is happening with Ireland. In a cute little twist, Ireland's Department of Finance is vehemently denying that they even WANT a bailout, saying that they have plenty of money to last at least through mid-2011. They're blaming the whole crisis on German Chancellor Angela Merkel, according to the Irish Times, for making some remarks last week implying that Germany REALLY doesn't want to have to bail out another country.

So, expect some meaningless announcement to be made by the EU ministers before the markets open on Monday, and expect it to do little to calm the panic for more than a few days.

Mideast negotiators are thinking about a new peace proposal

Israel's prime minister Benjamin Netanyahu has been having discussions with US Secretary of State Hillary Clinton, and has come up with a proposal that also has some cute twists.

The US had repeatedly asked the Israelis to extend the moratorium on building new settlements. The moratorium expired on September 26, and the U.S. wanted it extended for an additional 90 days, to give the so-called peace process a chance to work. Palestinian President Mahmoud Abbas had said that no further peace talks would occur until the settlement freeze is extended.

So Netanyahu has come up with a counter-proposal, according to the Jerusalem Post. Netanyahu will agree to the additional 90 day settlement freeze. In return, the US will supply Israel with 20 additional advanced fighter plans worth $3 billion. Furthermore, the US will agree to veto any proposals in the United Nations for a mandated Palestinian state.

As I've been saying for years, Generational Dynamics predicts that Arabs and Jews will be re-fighting the genocidal war that followed the 1948 partitioning of Palestine and creation of the state of Israel. Thus, it's hard to see how any peace talks of any kind could possibly succeed.

Additional links

After being in a coma for five years, Israel's former prime minister Ariel Sharon has been taken home to his desert ranch. Reuters

Relations between America and New Zealand have been strained since the 1980s, thanks to disagreements over deployment of nuclear weapons. But now the two countries have signed a new agreement that brings New Zealand back into the U.S. fold. Rajaratnam School of International Studies (RSIS)

China has a shortage of young women, thanks to the one-child policy, and a lack of affordable real estate, thanks to the real estate bubble. Put those factors together and a girl won't give you the time of day unless you're rich. NY Times

The war in Russia's southern province of Dagestan, in the North Caucasus, is getting worse, forcing Moscow to increase the size of its security forces, apparently with plans to launch a new offensive. As a sign of how bad things are, even the children of Russia's militia officers are joining anti-Russian the militant terrorists. Paul Goble

Top ten apps for your iPhone. NY Times

Chocolate contains enzymes that protect against heart disease. Eurasia Review

(Comments: For reader comments, questions and discussion, see the 14-Nov-10 News -- EU Ministers are thinking about a bailout of Ireland thread of the Generational Dynamics forum. Comments may be posted anonymously.) (14-Nov-2010) Permanent Link
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13-Nov-10 News -- G-20 economic summit accomplishes nothing

Burma's opposition leader Aung San Suu Kyi released after 21 years

President Obama criticizes China at G-20 economic summit that accomplishes nothing

As the world continues to head for a major financial crisis, world leaders of the "Group of 20" nations attending the economic summit in Seoul, Korea, finished with platitudes and postponements.

G-20 leaders photo (WSJ)
G-20 leaders photo (WSJ)

According to the Wall Street Journal (Access), the major "gain" from the meeting was that leaders signaled approval of each others' measures to fend off asset bubbles and to remain competitive. There'll also be more funds for a committee to make some recommendations.

The major "miss" from the meeting was that a decision was made to put off dealing with any actual issue, such as the threatened "currency wars," until next year. Presumably the hope is that the fabled "global V-shaped recovery" will finally be in progress by then, so major disagreements between China and the U.S. can be avoided again.

President Barack Obama accused China of intervening aggressively to weaken its currency to promote exports, according to the NY Times.

This follows a Chinese accusation, reported by Xinhua, that the quantitative easing program announced last week was an attempt to weaken the U.S. currency, "as concerns grow about the stability of the U.S. dollar as a global reserve currency."

From the point of view of Generational Dynamics, we're seeing the same governmental paralysis that I've been talking about for years. Whether it's in the United States, Europe, or China, all the politicians can do is sit around and hope that things will get better, and be prepared to blame other people as things get worse and worse.

Burma's opposition leader Aung San Suu Kyi released after 21 years

The BBC is showing live pictures of the release of Burma's opposition leader Aung San Suu Kyi, to the cheers of thousands of people. Suu Kyi has been under detention for 15 of the last 21 years.

Western leaders have been praising the release, but there's the suspicion that Suu Kyi will return to politics, with the result that she'll be arrested again. That may happen as soon as tomorrow. The NY Times reports that she will give a speech to thousands of her followers on Sunday, speaking from the headquarters of her party, the National League for Democracy.

Besides Aung San Suu Kyi, over 2200 other people have been held as political prisoners for years.

(Comments: For reader comments, questions and discussion, see the 13-Nov-10 News -- G-20 economic summit accomplishes nothing thread of the Generational Dynamics forum. Comments may be posted anonymously.) (13-Nov-2010) Permanent Link
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12-Nov-10 News -- Panic appears to be growing over Ireland's debt

Huge terrorist bomb attacks Pakistan's 'jugular' in Karachi

Panic appears to be growing over Ireland's debt

Las spring, when I was writing about Greece's debt crisis, I used the "P-word," pointing out there appeared to be a spreading panic over Greek bonds. In fact there was, and the panic was only stopped by the ginormous trillion dollar bailout.

Now the same thing appears to be happening with Ireland's bonds.

Here's the graph of 10-year bond yields up to Thursday, courtesy of FT Alphaville:

Ireland 10-year bond yields for 2010 to the present (FT Alphaville)
Ireland 10-year bond yields for 2010 to the present (FT Alphaville)

As you can see, interest rates have gone parabolic, and are now above 9%. This means that investors are panic selling Ireland's bonds, and unless the EU figures out a way to end the panic, Ireland will go into default.

Furthermore, as happened with Greece, the panic is spreading to other countries, as investors fear "debt contagion." Bond yields for Spain and Portugal are also rising quickly, according to Bloomberg, though they're still several points below Ireland's bond yields.

This is going to be fascinating to watch. The Germans absoluted HATED having to bail out the Greeks, but they did it because there was (figuratively) a gun pointed at their heads. Since Germany has the strongest economy in Europe, they're once again going to be called on to bail Ireland out, and Ireland's bailout would have to be bigger.

The next critical event for Ireland will be the release later this month of its four-year fiscal plan. The Moody's rating service has announced that they will await the release of that plan to decide whether to downgrade Ireland's rating, according to Reuters. The rating will undoubtedly be dependent on how painful the austerity measures are.

Huge terrorist bomb attack in Karachi strikes at the 'jugular' of Pakistan

On Thursday night, a massive truck bomb explosion demolished the front of the supposedly secure head office of the Crime Investigation Department (CID), the government organization leading the fight against terrorism. At 18 were killed, and 120 others were injured, according to The Nation (Pakistan).

"Karachi is the jugular of Pakistan," according to an official quoted by CS Monitor. Karachi is a port city with 160 million people, and it generates more than 60% of Pakistan's GDP.

Pakistan has been a magnet for jihadist groups trained in Pakistan's tribal areas, and Tehrik-e-Taliban Pakistan (TTP), commonly known as the Pakistani Taliban, have claimed responsibility for the attack.

Additional links

Part of Britain's austerity plan includes higher tuition fees for students. Everyone was surprised on Wednesday when a much larger than expected number of students in London took part on Wednesday in demonstrations and protests against the tuition increases. Emboldened by the big turnout, student activist groups are planning major strikes and disruptions on Movember 24. Guardian

Negotiators failed to agree on a new EU budget for the 27-member bloc. With austerity programs going on in most EU nations, national leaders were calling for cuts in the EU budget, while EU officials themselves want to increase their budgets. If no deal is found by Monday, then the EU budget will have to be handed out in monthly stipends. AP

Prime Minister Benjamin Netanyahu's entourage said that progress had been made on efforts to restart Israeli-Palestinian peace talks, but stopped short of saying there had been a breakthrough. Yawn. Haaretz

After a recent confrontation between Japan and China over remote islands in the East China Sea, Japan will deploy about 100 soldiers to remain on the westernmost island, to carry out coastal patrols and surveillance of Chinese naval vessels. China's increased naval presence in the area portends a new military confrontation before long. AFP

(Comments: For reader comments, questions and discussion, see the 12-Nov-10 News -- Panic appears to be growing over Ireland's debt thread of the Generational Dynamics forum. Comments may be posted anonymously.) (12-Nov-2010) Permanent Link
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11-Nov-10 News -- After sham election, Burma's junta scrambles to prevent unrest

Opposition leader Aung San Suu Kyi may be released after 27 years

After sham election, Burma's junta scrambles to prevent unrest

The military junta in Burma (Myanmar) had hoped to regain some international credibility by holding the first supposedly free election in 20 years.

Opposition leader Aung San Suu Kyi, daughter of Burma independence war hero Aung San (VOA)
Opposition leader Aung San Suu Kyi, daughter of Burma independence war hero Aung San (VOA)

Burma's election is widely regarded outside of Burma as being a sham election. President Barack Obama said that it was unacceptable to "steal an election." Many of the ballots were pre-marked with votes for the military junta, and polling booths were positioned so that officials could peek at voters' choices, according to Global Post. In some parts of Mandalay, the second largest city, polling places closed early, presumably to avoid risking anti-junta votes.

The election sparked violence between the Burmese army and rebels from the Karen ethnic group, causing thousands of Burmese people to flee across the border to Thailand. However, by Wednesday the fighting had stopped, and Thailand has been forcing refugees to return home, according to Australian Broadcasting.

From the point of view of Generational Dynamics, it's not surprising that civic violence has once again fizzled quickly, since Burma is in a generational Unraveling era, and large demonstrations that fizzle quickly are common during these eras as I described when the massive demonstrations occurred in 2007. (See "Burma: Growing demonstrations by the '88 Generation' raise fears of new slaughter.")

Both of Burma's last two generational crisis wars (1886-91, 1948-58) were bloody ethnic civil wars. Whenever such a war ends, a dynamic always sets in that must be understood to explain what's happening in Burma today. (See "Basics of Generational Dynamics.")

When a violent civil war ends, politics for the next 50 years is dominated by only one issue: Making sure that civic violence doesn't happen again. As soon as the war ends, officials attempt to set up an infrastructure and austere rules that will prevent any further internal violence. The steps that are taken differ in every case. After America's civil war, a Reconstruction period was instituted, and it seems to have been successful, since a second American civil war never occurred.

Burma gained independence in 1948, but didn't find peace until the ethnic civil war ended in 1958. At that time, a civilian government was set up, but within four years the army overthrew the civilian government, and has remained in power ever since. Whatever motives the army leaders had -- a desire for money and power, for example -- in such a situation a big motivation would have been the belief that the civilian government was too weak to prevent a new civil war.

The real problems always begin when the generational Awakening era begins, usually around 15-18 years after the end of the civil war, when the first generation growing up after the war begins to make their voices heard. The "generation gap" between the war heroes and their children always leads to massive political disagreements and low-level violence.

Burma's Awakening era climax occurred on 8/8/88, when hundreds of thousands of opposition students in the "88 generation," joined by monks and civilians, marched against the military government. This climax, which always occurs in every generational cycle, is the point at which a winner is decided -- either the younger generation or the older generation.

The Awakening is usually "won" by the younger generation since, after all, the older generation starts to die off. If a nation is to avoid another civil war, then the Awakening era climax MUST be won by the younger generation. For example, this is what happened in America, when President Richard Nixon was forced to resign in 1974. On the other hand, the older generation "won" in China, in the massive slaughter of the Tienanmen Square massacre in 1989.

In Burma, on 8/8/88, soldiers opened fire on the opposition demonstrators with machine guns, resulting in thousands of casualties. An opposition leader was Aung San Suu Kyi, the daughter of revered war hero Aung San. Suu Kyi and many of her supporters were arrested in 1989, but that didn't prevent her party from winning resoundingly in the 1990 elections. However, the army didn't permit the winning party to take office. Suu Kyi has remained under house arrest almost continually since then, with the army junta expressing fear that her release might mean spiraling violence.

Burma burst into worldwide news in 2007 with huge demonstrations and protests, led by Buddhist monks, typical of generational Unraveling eras. (For example, think of the "Million Man March" in 1990s America, which flamed brightly for a moment, and then extinguished.)

The irony of Burma's 2007 demonstration is that a new civil war was impossible in that generational era, and the demonstrations had to fizzle quickly, no matter that the ruling junta did. But, knowing nothing about generational theory, they went ahead with the worst strategy possible: Hundreds of activists and citizens were shot dead or burned alive in government crematoriums, and thousands of Buddhist monks, who led the protests to begin with, have been rounded up and detained. Some were found floating face down in rivers. All of this was unnecessary.

When the older generation of war survivors "wins" the Awakening era through violence, they begin to face a severe problem when the Unraveling era approaches its end, as is happening now in Burma.

Burma's leaders are now in their 70s, and the country is facing a succession crisis. The leaders distrust pretty much everyone in the the younger generations, and they're still fearful that any mistake can spiral into another bloody civil war. So they're facing some desperate choices.

Last Sunday, Burma had its first election in 20 years. Although most outsiders consider it to be a sham election, many Burmese citizens were quite excited about it, and considered it to be a first step on the path to a better life. VOA quotes a freelance reporter from Rangoon as saying, "It's a huge change. And the fact is there is an election that is being approved by the regime. There is open political activity going on. People are campaigning in the streets. People are talking about problems that they want fixed and that they want their candidates to be addressing. People are talking about what they don't like about the current regime. People used to only talk about that in confidence, in strict confidence, if they knew that you weren't somehow going to use that information to get at them."

Unfortunately, the euphoria will not last long, and already the junta is being pressured to prove that things are changing.

Under massive international pressure, the junta is considering freeing Aung San Suu Kyi from house arrest. On October 27, AFP reported that junta leaders were planning to release Suu Kyi after the election, and now VOA reports that preparations for her release were being made.

However, the situation is unclear because the release will be accompanied by limits on what Suu Kyi is allowed to do and say, and Suu Kyi has said that if she is released, she will say and do what she pleases, irrespective of any rules.

It's a very strange situation, isn't it. Aung San Suu Kyi is just one woman facing down a powerful military junta that fears what will happen if she's allowed to walk the streets instead of staying locked up in her home. But this is how irrational governments become.

From the point of view of Generational Dynamics, a new civil war is still impossible in Burma at this time, in a generational Unraveling era, and will be impossible for several more years. The release of of Suu Kyi may well cause some protests and demonstrations, and not releasing her may cause some protests and demonstrations, but in either case the demonstrations will fizzle quickly. Whether she's released or not will make no predictable difference to the future of Burma. It's too bad that the junta doesn't understand that.

(Comments: For reader comments, questions and discussion, see the 11-Nov-10 News -- After sham election, Burma's junta scrambles to prevent unrest thread of the Generational Dynamics forum. Comments may be posted anonymously.) (11-Nov-2010) Permanent Link
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10-Nov-10 News -- Europe and Asia bash quantitative easing as G-20 meeting approaches

South Africa's Boer farmers are headed for Georgia

Europe and Asia bash quantitative easing as G-20 meeting approaches

About 200 organizations have registered to demonstrate during the Group of 20 (G-20) economic summit being held on Thurday in Seoul, South Korea. Many protests will feature such theatrical tactics as animal sacrifices, torch burnings, flag-eating, dummy decapitations and feces hurling, according to the LA Times.

But the main drama is likely to take place in the meetings themselves of the leaders of the 20 "rich and developing nations."

Countries around the world have been bashing the quantitative easing proposal announced last week. Under this proposal, U.S. Federal Reserve central bank will purchase $75 billion in U.S. Treasuries each month until next summer. That money has to go somewhere, and officials in many countries are concerned that the money will create asset bubbles and destabilize their own economies.

German Chancellor Angela Merkel is concerned about a major confrontation between China and the U.S., and has said that she hopes to avoid one, according to Reuters.

The confrontation would come over the long-running American accusation that China has been artificially weakening its currency in order to makes its export products more competitive, and American exports less competitive.

An analysis by the Chinese government publication Global Times gives the reasons why China objects to the new Fed program:

"The most serious problem for the US is the lack of effective demand rather than an insufficient money supply. Currently, the US needs a new fiscal stimulus package and to maintain a strong dollar, rather than the further proliferation of liquidity.

Additional liquidity will not quickly enter the real economy and become assets. It will flow into financial institutions both domestically and overseas, creating new asset bubbles, which might lead to inflation both in the US and globally, and even an uncontrollable situation.

The new round of quantitative easing has brought fresh risks to the majority of the emerging markets. The recent uncontrollable issuing of the dollar and the continued rising of international commodity prices are bringing imported inflationary shocks to developing countries.

The world's creditor countries and emerging economies have been pushed to the edge of potentially malignant inflation and disorderly currency devaluation.

The US policy has not only increased imported inflationary pressure, but also made China suffer huge losses of foreign reserves."

The article goes on to describe imbalances that the QE program will create, and says: "This in turn will trigger a global "devaluation race," which will lead to intensified currency disputes and may cause a new worldwide "currency war" and trade protectionism, thus threatening global economic recovery."

President Obama, who will be attending the meeting on Thursday, has promised to put on a vigorous defense of the Fed proposal. Whether anyone will be convinced remains to be seen.

Additional links

When "land reform" occurs in southern Africa, it usually means taking land from white farmers and giving it to black farmers who may or may not have the skills to actually grow anything. (See, for example, "Zimbabwe's 'Liberation Hero' president Robert Mugabe continues to destroy his country.") Now there are fears that South Africa's government will adopt a similar "land reform" program, targeting the country's 40,000 white farmers, most Boers, descendants of Dutch settlers. Many of them are considering accepting an offer by the Georgian government to buy up land in Georgia at rock bottom prices in exchange for bringing their expertise and knowledge of modern farming methods. Independent

Morocco and Western Africa <font face=Arial size=-2>(Source: Al-Jazeera)</font>
Morocco and Western Africa (Source: Al-Jazeera)

Violence is growing between Morocco's security forces and a separatist group called the Polisario Front who are demanding independence for Western Africa, which was annexed by Morocco in 1975. This appears to be yet one more example of stop-start violence between a government and an ethnic group demanding independence, where the violence goes on for decades until it explodes into a full-fledged generational crisis war. Al-Jazeera

France's president Nicolas Sarkozy lost no time in signing into law the pension reform bill that raises the retirement age from 60 to 62. During the Parliamentary debate on the bill, millions of protesters filled the streets. New protests are scheduled for November 23. Agence France Presse (AFP)

(Comments: For reader comments, questions and discussion, see the 10-Nov-10 News -- Europe and Asia bash quantitative easing as G-20 meeting approaches thread of the Generational Dynamics forum. Comments may be posted anonymously.) (10-Nov-2010) Permanent Link
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9-Nov-10 News -- Investors shrug off Ireland's growing debt problem

Israel moving ahead with plans for 1,300 new apartments

Investors shrug off Ireland's growing debt problem

Interest rates (yields) on Ireland's debt surged again on Monday to fresh new highs approaching 8% interest, on concern that the nation's financial system is unsustainable, according to AP.

Even though interest rates are at historic high in several countries, investors don't seem very concerned, according to Canada's Financial Post, as they were last spring with the Greek debt crisis. "There is less systemic fears this time around," according to one analyst. "Then, there was much more concern that Europe as a whole would be dragged into recession."

Irish home loans nearing default <font face=Arial size=-2>(Source: WSJ)</font>
Irish home loans nearing default (Source: WSJ)

Apparently the reason that there's less concern this time around is that Ireland has enough money in reserve to stave off default for several more months, while Greece was facing an immediate "drop dead" date prior to the billion dollar bailout in May.

Nonetheless, there's little doubt that Ireland is in serious trouble. Like the U.S., Ireland had a huge real estate bubble during the heady days of the middle of the last decade, and now the number of foreclosures has been surging. More than 36,000 were at least 90 days behind on their loans as of June 30, according to the WSJ (Access), and nearly 200,000 Irish mortgages -- about one of every four -- is expected to be "underwater" by the end of this year. "Underwater" means that the bubble price of the home has collapsed so much that the home is worth less than the amount due on the mortgage loan.

Whenever analysts, journalists and politicians talk about these problems, they're always making the assumption that if we just wait another month or two, then the "V-shaped recovery" will kick in, and good ol' days of the bubble economy will return.

From the point of view of Generational Dynamics, that's impossible. The risk-ignorant Boomers and Gen-Xers have been burned, and they'll be risk-averse for the rest of their lives. Meanwhile, the worst is yet to come, as Generational Dynamics predicts that the financial crisis has barely begun, and will get much worse.

Additional links

Israel announced that it is moving ahead with plans for 1,300 new settlement apartments in East Jerusalem, thus shooting another bullet into the already dead "peace process" corpse. The U.S. State Department said that it was "deeply disappointed" by the announcement. Voice of America

The elections in Burma (Myanmar) on Sunday the re-elected the current government are widely viewed as sham. Reports of voter intimidation are widespread, and there was regional fighting between government forces and the Karen ethnic group, forcing 10,000 refugees across the border into Thailand. Independent

On Monday, speaking to India's parliament in Delhi, President Barack Obama endorsed India's bid for a permanent seat on the United Nations Security Council. This would require a renegotiation of the entire United Nations charter, since there currently can be only five permanent members -- U.S., United Kingdom, France, China and Russia. China will oppose any such status for India, of course, and the endorsement also places India's claim at a higher priority than those of Germany and Japan. LA Times

Canada is considering postponing full withdrawal of its troops from Afghanistan, and keeping 1,000 troops there to serve as "trainers," under pressure from the U.S. Globe & Mail

(Comments: For reader comments, questions and discussion, see the 9-Nov-10 News -- Investors shrug off Ireland's growing debt problem thread of the Generational Dynamics forum. Comments may be posted anonymously.) (9-Nov-2010) Permanent Link
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8-Nov-10 News -- India worries about war with the 'ChiPak threat'

China's corn crop fails to keep up with demand

India worries about war with the 'ChiPak threat'

In recent months, we've seen China's policies in the South China and the East China seas become increasingly confrontational and belligerent, as they've claimed that hundreds of islands, waters and sea lanes that have historically been part of other countries or public passageways are China's "core interests" and part of mainland China.

This belligerence has caused alarm among China's Asian neighbors, especially Japan and Vietnam, and has provoked a blunt response from the United States that China's refusal to back down could lead to military confrontation, according to Eurasia Review.

Dr. Manmohan Singh and Wen Jiabao (Xinhua)
Dr. Manmohan Singh and Wen Jiabao (Xinhua)

We now see the same increasing Chinese belligerence in its relations with India, and this has provoked concerns within India of an impending war.

The most dramatic policy change by China is with respect to Kashmir and Jammu, the disputed region claimed by both Pakistan and India, and a site of the bloody genocidal war between Hindus and Muslims that followed Partition, the 1947 partitioning of the Indian subcontinent into India and Pakistan.

China used to take a neutral stance on whether the various portions of Kashmir and Jammu are part of Pakistan or India, but now China is clearly siding with Pakistan in the dispute, according to India's Institute for Defence Studies & Analyses. China has even been taking actions such as denying visas to Indian citizens of Jammu and Kashmir. This is not a major action, since few such visas are requested, but it's highly symbolic and shows China's intentions.

In recent meetings between Dr. Manmohan Singh and Wen Jiabao, the two countries' prime ministers, Singh attempted to turn the tables on China by using the "core interests" arguments that China uses in the South China sea. Howeven, Wen was apparently unmoved, as DNA India reports that nothing was resolved.

China is also building up its military in the areas near the India border. In the so-called "Tibet Autonomous Region" of China, where the Tibetans are supposedly self-governing, the People's Liberation Army (PLA) is installing an extensive highway network, several airports and railway lines. China is conducting military exercises in the region with the PLA and Air Force, according to an analysis by Bahukutumbi Raman.

Gilgit-Baltistan is a region in the northern part of Kashmir that Pakistan ceded to China in the past. There are 7,000 Chinese troops working in Gilgit-Baltistan to build roads and railways that link China to a huge sea port that China is building in Pakistan on the Arabian Sea, according to the Guardian.

Finally, China is developing much closer ties with Pakistan (sometimes referred to as "China's Israel"), including the supply of missiles and nuclear weapons technology that can be used to build bombs.

Thus, India is being encircled by the "ChiPak threat," according to India Today. An analyst is quoted as saying, "The ChiPak relationship is the first and oldest proliferation relationship, a reward for Pakistan supporting Mao at the UN at a time when the US demanded all nations support Chiang Kai-Shek. What followed was limitless aid, without strings, proffered especially in the military and nuclear arenas."

This has raised concerns in India's Ministry of Defence, outlined in a detailed study prepared by India's Air Force. The plan contemplates a nightmare scenario: a simultaneous attack by China and Pakistan along India's western, northern and northeastern borders, a concerted multi-front air-land battle over 7,000-km that stretches the Indian armed forces thin and potentially threatens to sever Jammu and Kashmir.

According to the report, Pakistan is currently estimated to have between 70-90 nuclear weapons, compared to India's 60-80, and has produced enough fissile material to make another 90 nuclear weapons.

An Indian strategic analyst is quoted as saying, "When somebody arms a hostile neighbour with nuclear weapons and first strike delivery systems like cruise missiles, it is an act of war."

It's worth pausing here to note that there have been lots of "acts of war" this year in Asia, not the least of which was the North Korean sinking of the South Korean warship Cheonan. The tension in Asia has grown enormously in 2010, and any miscalculation can lead to an escalating war.

From the point of view of Generational Dynamics, the "ChiPak" alliance is part of an overall trend leading to world war.

When I first started writing about the "Clash of Civilizations" world war six or seven years ago, I said that it was "my expectation" that China would be allied with Pakistan and the Sunni Muslims, while America would be allied with India, Russia and Japan.

At this point in time, there's so much accumulated evidence that this "expectation" has crossed the line into a full-fledged Generational Dynamics prediction.

There are fewer and fewer ambiguities left. In 2010, all forms of xenophobia around the world have been growing at the fastest rate since the 1930s. More countries are increasingly being forced to choose sides, or at least to adopt policies that won't be reversible when they are forced to choose sides.

It's still impossible to predict the time frame, or what will trigger a war, but the number of possiblities seems to increase every day.

Additional links

Price of gold, 1851-2010, in constant 2010 dollars (Motley Fool)
Price of gold, 1851-2010, in constant 2010 dollars (Motley Fool)

Motley Fool is warning investors that gold is in a bubble and the price could drop below $500. They reach this conclusion by graphing the price of gold back to 1851, and applying the Law of Mean Reversion. Motley Fool

China's corn crop rose this year, but not enough to keep pace with increased demand. China became a net importer of corn last year. Bloomberg

As we've described many times over the years, Iran's President Mahmoud Ahmadinejad and other Iranian leaders have been fantasizing about gaining hegemony over all the Muslim states in the region, something that's manifestly impossible, since Sunni Muslim Arabs would never agree to be influenced by Shia Muslim Persians. A recent trip by Ahmadinejad to Lebanon has cheered Lebanon's Shias, but Sunnis are disquieted. Increasingly, Arab Sunnis are turning for guidance to Turkey. This is not surprising, since Turkey and the Ottoman Empire ruled Muslims in the region for centuries. Qantara

Earthquake prediction in China is a government-sanctioned and law-regulated activity, deeply rooted in the country's history. China's 2008 earthquake disaster killed more than 80,000 people and left more than 4 million homeless, but it allowed the Chinese science community to demonstrate its capability to a global audience. However, the most important lesson from the earthquake is that it is presently impractical to rely on prediction to prevent earthquake disasters. Eurasia Review

Separatist Muslims in Kashmir observed Jammu Martyrs Day on Saturday, commemorating the bloody 1947 war that followed Partition. Daily Times (Pakistan)

A recent BBC report accusing Pakistan of running terrorist training camps in Kashmir has been vehemently denied by Pakistan's Foreign Office. Pak Observer

China says that it's "available" to help out with Portugal's debt crisis. Bloomberg

11 Home Remedies for Great Sex. Fox News

(Comments: For reader comments, questions and discussion, see the 8-Nov-10 News -- India worries about war with the 'ChiPak threat' thread of the Generational Dynamics forum. Comments may be posted anonymously.) (8-Nov-2010) Permanent Link
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American xenophobia on the Left and on the Right

Both the loony left and the loony right are damaging America

American xenophobia on the Left and on the Right

The security and success of any nation depends on the support and loyalty of the population. During a generational Crisis era, the outmoded ideas of the previous Awakening era stop working, and a desperate public begin to turn away from moderation toward extremism, as I discussed recently in "3-Nov-10 News -- The political realignment continues."

Over the years, I've been extremely critical of the nihilism and destructiveness of the loony left, including the mainstream media. However, I've been criticized for not giving equal time to criticisms of the loony right.

My response to such criticisms was that I have nothing to contribute by criticizing the lunacy on the right, since even the slightest aberration on the right is criticized overwhelmingly by the mainstream media. It's this imbalance in the mainstream media that means that I've had something to contribute by criticizing the loony left, but little to contribute by criticizing the loony right.

In recent months, some things have changed:

With regard to the last point, the index of my BigPeace articles can be found here. If you look through these articles, pay particular attention to the comments to the articles that were posted in September and October, 2010. (In subsequent articles, the web site administrators began deleting the most offensive comments.) (Paragraph updated - 17-Nov)

In this essay, I'd like to compare the attitudes of far right xenophobes and far left xenophobes. I've found them to be very similar in attitudes and techniques, differing only in their choice of targets.

Particular similarities between the right and left wing xenophobes include nihilistic, destructive and self-destructive attitudes that are typical of many Generation-Xers who have spent their lives hating Boomers. I can't be sure that all the right wing xenophobes that I've encountered were in Generation-X, but they appear to share those characteristics.

Other similarities between the far left and far right xenophobes include their contempt for American ideals and American armed forces. They pay lip service, of course, but their attitudes and recommendations are extremely destructive and nihilistic, once again fitting the Generation-X paradigm.

The view from the loony right

In one of my early articles on BigPeace, I wrote about the disastrous floods in Pakistan, and I was quite shocked at what I saw in the comments. In the comments to that and subsequent articles, I saw things like the following (paraphrasing):

Long-time readers of this web site know how contemptuous I am of people who say stupid and loony things, especially bankers, politicians and journalists. But these are some of the stupidest and looniest comments I've ever seen. Quite honestly, these views are so deviant that I'm tempted to see them as almost psychotic.

And yet, and yet, these xenophobic views are apparently held by a tiny but growing segment of the population, so it's worthwhile to take them seriously to the extent of trying to make sense out of them, to put together a kind of semi-abstract world model in which their views make some sense, even while they make no sense in the real world.

The world view of the xenophobic right

The people in the xenophobic right believe that ordinary Muslims of the world will produce murder, mayhem and misery, and will impose Sharia law on the United States unless they're stopped. How do they believe that will come about?

It can't come about by popular vote, so it would have to come about through war -- either a massive uprising or by an external war from some Muslim country, say Pakistan or Iran or Saudi Arabia.

In the times that I've tried to engage these people, to see their reactions, I've pointed out to them that the real threat of external war is coming from China, not Saudi Arabia, but they seem to discount that threat. If they discount a military threat from China, then surely they can't believe that the United States faces an existential threat from any Mideast country.

The only scenario I can think of that seems to plausibly fit their world view is a worldwide uprising of Muslims, who will turn on Christians and Jews in the same way that the Hutus turned on the Tutsis in Rwanda in 1994, or the Christians turned on the Muslims in Bosnia in 1995.

This makes no sense logically, but it may make sense in a purely visceral, emotional sense, so let's examine it further.

The Rwandan and Bosnian genocide scenarios do not fit the current American scenario in two important ways. First, those genocides occurred in very small regions. And second, those genocides occurred as the climaxes of several years of civil war, punctuated by peace agreements along the way.

From the point of view of Generational Dynamics, the only way that this kind of genocide can occur is as the climax of a generational crisis war, and there is no war going on between ordinary Muslim and non-Muslim Americans. You can point to isolated incidents of violence, including the Fort Hood shooting and the 9/11 attacks, but there's no identity group formation around those attacks, which are abhorred by many Muslims.

Still, the "worldwide Muslim uprising" model is probably the best attempt at a world view model of the xenophobic right that I can come up with.

Historic comparisons to the 'Worldwide Muslim Uprising' model

I've tried to think of historical examples that might justify the visceral fear of the "Worldwide Muslim Uprising" model, but they're hard to find.

In 1919, following the Bolshevik Revolution, there was a "Red Scare," a widespread fear of a Communist attack on the United States. Attorney General Palmer initiated the "Palmer Raids," jailing hundreds of known or suspected communists. The threat of a communist rebellion and civil war amounted to nothing, and the whole thing was a political fiasco.

Many right-wingers refer to Muslims as the "new Nazis." But even the Nazi example provides a poor historical analogy.

During World War II, thousands of Japanese Americans and German Americans were arrested and put into internment camps. However, relative to the American population, the German American population was huge, and so the overwhelming majority of German Americans were not interred. Nonetheless, the German Americans did not rise up and kill Americans in sympathy with their Nazi brethren in the Vaterland. Instead, they fought WITH Americans against the Nazis. And of course Albert Einstein, who developed the nuclear technology that won the war against the Japanese, was a German-American who helped America. (Paragraph corrected - 7-Nov)

There were isolated incidents of violence by German-Americans and Japanese-Americans during World War II, but the visceral fears of a massive uprising, such as the fears currently held by the xenophobic right, did not materialize in any sense.

As I've written many times, we're headed for a "Clash of Civilizations" world war, pitted against the Chinese and Sunni Muslim countries. My expectation is that, with the exception of isolated incidents of violence, Chinese-Americans and Muslim-Americans will be loyal to America, and will not rise up en masse, in the way that the Hutus rose up and slaughtered the Tutsies.

Should we start an internment program for Muslims, like the ones for Germans and Japanese during World War II? Presumably the far right xenophobes who believe that all Muslims should be deported would agree with such a policy.

What most people don't realize is that we've already had an internment program for Muslims. Following 9/11, there was a massive jailing of Muslims. 800-1000 Muslims were locked up for many months with no more serious charge than a minor visa violation. They were allowed to have lawyers, but the government was to be permitted to listen in on their conversations with their lawyers. Here's a BBC story from 2001 describing the internment program.

There are other examples of xenophobic panic -- the Salem Witch Trials and the aftermath of Orson Welle's 1938 radio show, War of the Worlds, come to mind.

But none of the examples that come to mind fit the "Worldwide Muslim Uprising" model, or even a more narrow "National Muslim Uprising" model.

We can also look at other examples of religious terrorism where there wasn't xenophobia. A good modern example is the IRA terrorism that was prevalent until the early 2000s. This was essentially a religious war between Protestants and Catholics, and yet no responsible person would recommend allowing Protestant mothers to drown, or Catholic mothers to drown, or Irish mothers to drown.

The loony left and the Tea Party

The pathological hatred that the loony right exhibits towards Muslims is an almost exact mirror image of the pathological hatred that the loony left exhibits towards the Tea Party.

If you want to find loony left views that correspond to loony right views like, "Muslims can’t produce anything on their own other than mayhem, murder, and misery," or "The vast majority of Muslims around the world are supportive of rape and murder," then you can look, for example, to an MSNBC interview by Keith Olbermann of Jeaneane Garofalo, transcribed by Newsbusters in April, 2009.

Olbermann began with, "Well, the teabagging is all over, except for the cleanup," saying that the Tea Party was losing popularity, and would be dead soon. He introduced Garofalo, who said:

"[T]here's nothing more interesting than seeing a bunch of racists become confused and angry at a speech they're not quite certain what he's saying. It sounds right and then it doesn't make sense. Which, let's be very honest about what this is about. It's not about bashing Democrats, it's not about taxes, they have no idea what the Boston tea party was about, they don't know their history at all. This is about hating a black man in the White House. This is racism straight up. That is nothing but a bunch of teabagging rednecks. And there is no way around that. And you know, you can tell these type of right wingers anything and they'll believe it, except the truth. You tell them the truth and they become -- it's like showing Frankenstein's monster fire. They become confused, and angry and highly volatile. That guy, causing them feelings they don't know, because their limbic brain, we've discussed this before, the limbic brain inside a right-winger or Republican or conservative or your average white power activist, the limbic brain is much larger in their head space than in a reasonable person, and it's pushing against the frontal lobe. So their synapses are misfiring."

Garofalo is essentially saying, "Tea Partiers (teabaggers) can’t produce anything on their own other than mayhem, murder, and misery."

The loony left attitudes are almost identical to the attitudes that the loony right have towards Muslims except, of course, for the targets. There's the same pathological hatred, the same extremely deviant world view, and the same abusive attitudes.

However, there's one very big difference: People on the loony left generally use their real names, while people on the loony right generally do not.

Garafalo is garbage, but she's the left's garbage, and so she's widely quoted on the mainstream media. Garafalo can openly display her hatred, racism, xenophobia and abusive behavior without paying a price, because she's on the left.

But people on the loony right can't do that. Instead, they use phony names like "BronxZionist" or "ObamaYoMoma" for the same reason that KKK activists used to wear sheets over their heads -- so that they could display their hatred, racism, xenophobia and abusive behavior without being identified and forced to pay a price.

The nihilism and destructiveness of Generation-X

I've written a lot about how disaffected and alienated Generation-Xers feel toward American society, largely because they spent their lives being discriminated against in favor of Boomers. This has resulted in a nihilism, destructiveness and self-destructiveness that I've written about many times. (See for example "The nihilism and self-destructiveness of Generation X.")

In 2007, people in the loony left were demanding that funding be withdrawn from American troops in Iraq. They paid lip service to supporting the troops, but in actual practice they were siding with the terrorists in Iraq. I viewed much of what they said, including what was said by the New York Times and NBC News, as close to treason, and continue to hold that view today.

The people on the loony right are the same. They advocate such things as drowning or deportation of ordinary Muslims, and in doing so they express contempt for American society and ideals, and they provide a recruiting tool for al-Qaeda and Taliban terrorists. It's quite possible that the loony right have gotten American soldiers killed. What's clear is that they're as destructive to American society as the loony left are.

People like Jeaneane Garofalo and "BronxZionist" are almost identical and indistinguishable. They're like negative infinity and positive infinity which, in some branches of mathematics, eventually meet with one another and become identical. If al-Qaeda had a program to install undercover terrorists into American society, they couldn't do any better than these two.

However, it's well to remember that America is very cruel to extremists.

The loony left were enormously humiliated and disgraced when the "surge" in Iraq succeeded.

And now the left have been enormously humiliated and disgraced once more, when the Tea Party not only didn't die out, but proved to be a major factor in the 2010 elections.

Now that the Tea Party has been so successful, it's my expectation that the loony right will become more prominent in the movement. And it's also my expectation that the loony right will be enormously humiliated and disgraced within a few years.

The repudiation of mainstream news

The above quotes from Olbermann and Garofalo contain the vile epithet "teabagger" with reference to Tea Party members. I wrote about this epithet 18 months ago in "Vile 'teabagging' jokes signal the deterioration of CNN and NBC news."

I watch Howard Kurtz's CNN show "Reliable Sources" every week, and he frequently comments on his bafflement that people are listening to Fox rather than CNN. And yet I've never heard him comment on the connection between the "teabag" epithet and the shift in news ratings.

In the article referenced above, I quoted CNN's Anderson Cooper as referring to the Tea Party by saying, "It's hard to talk when you're teabagging," to howls of laughter from the other CNN correspondents, including David Gergen.

Now, Anderson Cooper and David Gergen are leading CNN correspondents.

Suppose Anderson Cooper had used the "N-word" in reference to Jesse Jackson, and then David Gergen howled with laughter.

Or suppose David Gergen had used the "N-word" in reference to an NAACP event, and then he and Anderson Cooper had giggled about it.

If those events had happened, then how many blacks would be listening to CNN today?

The reason that people are leaving the mainstream media in droves is that they freely use the equivalent of the "N-word" in descriptions of a large segment of the American population.

Mainstream reporters like Anderson Cooper and David Gergen exhibit exactly the kind of hatred, racism, xenophobia and abusive behavior that I was describing above of the loony left and the loony right. The only thing that's surprising is that the media reporter, Howard Kurtz, doesn't appear to have a clue about this.

What constitutes xenophobia toward Muslims?

The rise in worldwide xenophobia of all forms is very alarming, and it's a panicked response to the failure of Awakening era ideas to work any more.

There are many commentators who want to maintain journalistic integrity in their writings without being racist or xenophobic, at a time when the world fears terrorist attacks from Muslims. What's the dividing line?

I have to deal with this problem all the time. In recent weeks, I've written about planned terrorist attacks in Europe and America, perpetrated by everyone from Al-Qaeda on the Arabian Peninsula to the Islamic Movement of Uzbekistan.

What I do, and what every legitimate commentator and journalist must do, is sharply distinguish between ordinary Muslims and Islamist terrorists, just as you would distinguish between ordinary Irishmen and IRA terrorists.

Because the facts are that such a sharp distinction exists. Each month, I read thousands of news articles from media of every country and every point of view around the world, and what's clear over and over is that the biggest worldwide enemies of Islamist terrorists are the ordinary Muslims. Even anti-American Pakistanis who want Americans to go home do not particularly wish us harm; they blame the violence they're suffering on al-Qaeda and Taliban terrorism, and they blame Americans for energizing the terrorists. That's why the Islamist terrorists kill many, many times more ordinary Muslims than they do Europeans or Americans.

(Comments: For reader comments, questions and discussion, see the American xenophobia on the Left and on the Right thread of the Generational Dynamics forum. Comments may be posted anonymously.) (7-Nov-2010) Permanent Link
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6-Nov-10 News -- International fury at U.S. quantitative easing

Revival of the Islamic Movement of Uzbekistan (IMU)

International fury is growing at America's $600 billion quantitative easing plans

Countries around the world have been loudly criticizing the decision by the U.S. Federal Reserve to pump $600 billion new money into the banking system by purchasing Treasury bonds.

German Finance Minister Wolfgang Schäuble expressed sharp criticism, according to Der Spiegel. He complained that the policy will "create additional problems for the world," and said,

"I don't think they are going to solve their problems that way. They have already pumped an endless amount of money into the economy via taking on extremely high public debt and through a Fed policy that has already pumped a lot of money into the economy. The results are horrendous."

The reason for the complaints is that the additional money is going to affect international exchange rates, causing the American dollar to become weaker and foreign currencies to become stronger.

The announcement pushed the exchange rate to the euro above $1.42, where it had been at $1.30 a short while ago. At the higher figure, European exports are more expensive in America, and American exports are cheaper in Europe. So it will be easier to sell American products on the international markets, and more expensive European products will not be able to compete.

South Africa's finance minister Pravin Gordhan warned that "developing countries, including South Africa, would bear the brunt of the US decision to open its flood gates without due consideration of the consequences for other nations," according to the BBC. He added that the US policy "undermines the spirit of multilateral co-operation that G20 leaders have fought so hard to maintain during the current crisis."

This gets to the crux of the matter. The G20 leaders promised each other that they wouldn't start a currency war -- a race to the bottom where each country would try to make its currency as weak as possible to improve its sale of exported products.

Ben "helicopter" Bernanke in 2007 cartoon
Ben "helicopter" Bernanke in 2007 cartoon

Guido Mantega, the Brazilian finance minister who has warned of a currency war in the past, is quoted by Financial Times (Access) as saying, "Everybody wants the US economy to recover, but it does no good at all to just throw dollars from a helicopter."

Montega is alluding to a 2002 speech by Fed Chief Ben Bernanke where he said, "A money-financed tax cut is essentially equivalent to Milton Friedman's famous 'helicopter drop' of money."

An adviser to the Chinese central bank issued a veiled threat of retaliation: "As long as the world exercises no restraint in issuing global currencies such as the dollar – and this is not easy – then the occurrence of another crisis is inevitable, as quite a few wise Westerners lament."

Despite the airheaded exuberance that stock market investors have been showing since the announcement of the QE program, it's going to have a rocky road ahead, as it faces widespread international opposition, and possible retaliation.

Revival of the Islamic Movement of Uzbekistan (IMU)

Second only to al-Qaeda itself, the most virulent Islamist terrorist group in the world is the Islamic Movement of Uzbekistan (IMU).

As I wrote last year in "Islamist Uzbeks lead terrorists in Pakistan and Afghanistan," the most dangerous enemy of all in Afghanistan and Pakistan is not the Taliban, but several hundreds fighters from the IMU.

The IMU was weakened last year when a U.S. Predator drone strike in Pakistan killed the leader of the IMU, and inflicted heavy losses among the terrorists, according to Jamestown.

In the ensuing year, the IMU has reconstituted itself, and is attempting to create a Caliphate by replacing the leaders of the post-Soviet Central Asian countries. The IMU even has an offshoot called the Islamic Jihad Union (IJU) that targets Europe.

The IMU is particularly targeting Tajikistan, according to Spiegel. Tajikistan is a nearly failed state, with extreme poverty, a breeding ground for Islamist terrorist sentiments.

Relations between Uzbekistan and Tajikistan are already strained anyway. Both were Soviet republics that became independent nations when the Soviet Union dissolved. In the Soviet days, Uzbekistan supplied gas, transport routes and electricity power lines to Tajikistan, but that relationship has caused conflict since then.

In order to gain some leverage, Tajikistan is going ahead with a huge dam project at Roghun that will allow it to produce its own electricity, and even become an electricity exporter, according to an analysis earlier this year by Central Asia-Caucasus Institute. However, that dam would severely limit the flow of water into Uzbekistan, and so Uzbekistan is appealing to Russia and the United Nations to review the Roghun project.

Uzbekistan has retaliated by blocking freight railway lines, and holding up the transit of rail freight passing through Uzbekistan and bound for Tajikistan. Tajikistan has appealed to a European organization, the Organization for Security and Cooperation in Europe (OSCE) to review the situation, according to RFE/RL.

Central Asia has been the battlefield for ethnic wars for centuries, including wars between the Uzbeks and the Tajiks. The Uzbeks are Turkic-speaking people while the Tajiks are Persians, and speak the same language as the people of Iran. Thus, there is some pressure in Iran to intervene on the side of the Tajiks, according to Iran's FARS news agency.

From the point of view of Generational Dynamics, there is no chance of a major war breaking out between Uzbekistan and Tajikistan, because both countries are in generational Recovery eras, having had crisis wars in the 1990s.

Additional links

Two major terrorist attacks struck near Peshawar in northwest Pakistan on Friday, as bombers blasted two mosques in areas that are known for anti-Taliban sentiment. 76 people, including children, were martyred, and 132 others were injured. The Nation (Pakistan)

The Hamas government in the Gaza Strip is warning people against buying cars important from Israel for fear that they may contain evesdropping equipment or even remote-activated bombs. Hosever, many Gazans suspect that the real reason for Hamas's warning is that it doesn't profit from the sale of vehicles imported from Israel. Jerusalem Post

During the last decade, Malaysia has quietly become the leading international player in Islamic finance. Malaysia has one of the most advanced financial systems among emerging market economies, the most advanced of all Muslim countries. Asia times

Friction is growing between India and China over China's Kashmir policy. China is increasingly siding with Pakistan in issues affecting India. Institute for Defense Policies and Analysis

(Comments: For reader comments, questions and discussion, see the 6-Nov-10 News -- International fury at U.S. quantitative easing thread of the Generational Dynamics forum. Comments may be posted anonymously.) (6-Nov-2010) Permanent Link
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5-Nov-10 News -- Burma's sham election and the 88 Generation

Ireland's bond yields continue to rise in crisis levels

Burma/Myanmar's sham election includes a sham '88 generation'

On Sunday, Burma (also called Myanmar) is planning to hold elections for the first time in 20 years. However, these are widely believed in the West to be sham elections, according to CNN, and few doubt that the winning party will be the Union Solidarity and Development Party (USDP), the party representing the current military junta.

Burma's last generational crisis war was the bloody 1948-58 civil war among ethnic groups. The war climaxed in 1958 when the army took power, turning it over to a civilian government. In the ensuing generational Recovery era, the army overthrew the civilian government and has remained in power since then.

Burma's generational Awakening era, beginning around 1975, climaxed in 1988. On 8/8/88, hundreds of thousands of students in the "88 generation," joined by monks and civilians, marched against the military government. Soldiers opened fire on demonstrators with machine guns, resulting in thousands of casualties.

The people in the 88 Generation led new demonstrations in 2007. (See "Burma: Growing demonstrations by the '88 Generation' raise fears of new slaughter.")

Once again, the demonstrations were crushed with gunfire, and many of the leaders were jailed and still remain in prison.

So the bizarre twist Sunday's election is that one of the registered parties in the election is called the "88 Generation Student Youths," a party that has absolutely no connection to the leaders of the opposition 88 Generation group who, as we've said, are all in prison. According to the BBC, the 88 Generation Student Youths party is believed to be supported by the military junta.

So it appears that the junta has found a way to extend the election sham even further -- by backing a pretend opposition party that actually supports the junta.

Additional links

Interest rates (yields) on bonds issued by Ireland have risen to almost 8%, the level that prevailed in Greece before it was rescued by the EU in May. As happened in the case of Greece, there appears to be panic selling of Irish bonds, pushing prices down and yields up. If this continues, then Ireland will require a massive bailout by the EU to prevent default. Irish Times

Wall Street stocks appeared to be going parabolic on Thursday, as the Dow Industrials index added 219 points to close at a two-year high. Euphoric investors poured money into the market to celebrate the $600 billion quantitative easing plans by the Fed. Reuters

Palestinian Authority president Mahmoud Abbas repeated his accusation that Israel's settlement activities are blocking peace talks. But he also blamed Hamas for slowing the peace process, and he blamed Iran for pressuring Hamas to do everything possible to stop the peace process. CNN

(Comments: For reader comments, questions and discussion, see the 5-Nov-10 News -- Burma's sham election and 88 Generation thread of the Generational Dynamics forum. Comments may be posted anonymously.) (5-Nov-2010) Permanent Link
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4-Nov-10 News -- Fed announces $600 billion quantitative easing

Fed Chairman Ben Bernanke defends the decision

I apologize for the lateness of this posting. I had hoped to get it posted much earlier, but life intervened.

Federal Reserve will purchase $600 billion in bonds for quantitative easing

In a widely anticipated announcement, America's central bank, the Federal Reserve, will purchase &600 billion in Treasury bonds, in effect "printing" $600 billion of new money liquidity and pouring it into the global financial system. The rate of purchase will be $75 billion per month, according to Bloomberg, and will continue through June of next year.

The move is extremely controversial. Proponents argue that it's necessary because the economy has not been growing as expected, and the additional liquidity is required so that banks will lend money to businesses that will use it to create jobs.

Opponents argue that the previous $1.5 trillion in quantitative easing does not appear to have created jobs, and that the new round will cause inflation instead of jobs.

Long-time readers of this web site will not be surprised that I believe that neither of these effects will occur, and the $600 billion in quantitative easing will have no effect on jobs or inflation, though it will create or expand asset bubbles. I'll come back to these points later.

But first I'd like to address an essay published in Thursday's Washington Post by Ben Bernanke, chairman of the Federal Reserve, explaining and defending the action.

First, I have to point out that I've been bitterly critical of Bernanke, starting in September 2004, in "Bernanke / Federal Reserve congratulates itself on jawboning policy." In that article, I criticized Bernanke for believing that the Fed could control long-term interest rates by making the appropriate statements to the press. I couldn't believe that Bernanke could possibly believe what he was saying, but indeed he did.

I also wrote, "Ben S. Bernanke: The man without agony" contrasting Bernanke's fully confident beliefs to those of his predecessor, Alan Greenspan, who clearly was beginning to believe that a new Great Depression would NOT be avoided.

So it's worth pointing out that Bernanke has been wrong time after time. He said that the subprime crisis would be "contained," and it wasn't. He said repeatedly that the recession would end and the economy would grow, and usually it didn't. He talked about "green shoots" when there weren't any.

Bernanke is considered a world expert on the 1930s Great Depression. Many times he has stated his firm belief that the Great Depression could have been avoided completely if only the Fed had lowered interest rates by a small amount. He applied his own advice to the American economy, starting in 2007, as I wrote in "Bernanke's historic experiment takes center stage."

So now, three years later, the Fed has lowered interest rates effectively to zero, and has also poured trillions of dollars into the economy, and his predictions about the effects of these policies have turned out to be completely wrong.

Having said all that, I've also said that I have a great deal of respect for Bernanke as a man, because he is apparently an honest, decent man who says what he believes without spinning it. In that he's contrasted to most people in Washington and Wall Street, who just scream "sleaze" whenever they open their mouths.

Bernanke's essay first defends the previous quantitative easing actions essentially by saying that things would have been much worse without them. He goes on:

"Notwithstanding the progress that has been made, when the Fed's monetary policymaking committee - the Federal Open Market Committee (FOMC) - met this week to review the economic situation, we could hardly be satisfied. The Federal Reserve's objectives - its dual mandate, set by Congress - are to promote a high level of employment and low, stable inflation. Unfortunately, the job market remains quite weak; the national unemployment rate is nearly 10 percent, a large number of people can find only part-time work, and a substantial fraction of the unemployed have been out of work six months or longer. The heavy costs of unemployment include intense strains on family finances, more foreclosures and the loss of job skills.

[[Above, he lists the reasons why the economy is bad. Next, he says that inflation risk is minimal, and that deflation is a significant risk.]]

Today, most measures of underlying inflation are running somewhat below 2 percent, or a bit lower than the rate most Fed policymakers see as being most consistent with healthy economic growth in the long run. Although low inflation is generally good, inflation that is too low can pose risks to the economy - especially when the economy is struggling. In the most extreme case, very low inflation can morph into deflation (falling prices and wages), which can contribute to long periods of economic stagnation.

Even absent such risks, low and falling inflation indicate that the economy has considerable spare capacity, implying that there is scope for monetary policy to support further gains in employment without risking economic overheating. The FOMC decided this week that, with unemployment high and inflation very low, further support to the economy is needed. With short-term interest rates already about as low as they can go, the FOMC agreed to deliver that support by purchasing additional longer-term securities, as it did in 2008 and 2009. The FOMC intends to buy an additional $600 billion of longer-term Treasury securities by mid-2011 and will continue to reinvest repayments of principal on its holdings of securities, as it has been doing since August.

This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."

The last paragraph has several problems.

He says, "This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action."

This gets back to my original criticism of Bernanke -- that he seems to believe that the economy depends on jawboning or other ephemeral factors. He appears to have no grasp of the underlying factors that drive the economy.

The rest of the paragraph contains vague promises about what might come of quantitative easing. Notice that the word "jobs" does not appear. If Bernanke believed that what he's doing would create jobs, he'd say so, but he doesn't.

What he does say is that stocks will go up, and that may well be the principal effect of quantitative easing. All of this money has to go somewhere, and all the "safe" investments (U.S. Treasuries) are being sucked up by the Fed itself, so this money will flow into more risky assets, including the stock market.

Expanding asset bubbles

This is a very risky strategy, because it makes the stock market bubble bigger, and risks bigger pain when the bubble bursts.

Although American investors consider all this to be "good news," not all foreign investors feel the same way. A good example is Hong Kong, which is in a huge real estate bubble, after home prices rose 50% during the last 20 months, according to Bloomberg. Hong Kong officials fear that a lot of Fed's QE money is going to pour into the local real estate market, pushing home prices up even higher.

That illustrates the problem. The QE money isn't going into people's salaries, which would cause inflation. Nor is it being invested in small businesses. Instead, it's simply pouring into increasingly risky asset bubbles, here and around the world. These include various real estate bubbles, stock market bubbles, and commodity bubbles.

The unanswered arguments

I've been writing about this subject since 2002, which is the first time that I said that we're headed for a new 1930s style Great Depression. This was based on historical analysis, that the stock market was overpriced by a factor of about 200%, and had been overpriced since 1995. (See "Updating the 'real value' of the stock market.")

Today, the stock market is still overpriced by a factor of close to 200%, and has been almost continuoously since 1995. Price/earnings ratios have been continuously well above average since 1995. By the Law of Mean Reversion, stock prices must fall below Dow 3000, and remain there for a long time.

Now, I didn't make up the Law of Mean Reversion. Furthermore, it isn't rocket science. It simply says that the average in the future should equal the average in the past. When applied to price/earnings ratios, it means that values should fall from their current levels, close to 20, to about 5, as they were in the 1980s.

Since I started writing about this subject 8 years ago, I've read tens of thousands, perhaps hundreds of thousands of articles on finance. I've see articles on just about every screwy financial measure you can imagine.

But I have never seen a single article addressing the Law of Mean Reversion, or the fact that common sense tells you that price/earnings ratios are sure to return to 1980s levels at some point.

Instead, I've seen something different, and I've written about this many times. People come onto Bloomberg TV or CNBC and simply lie about price earnings ratios. (For recent examples, see "5-Oct-10 News -- Goldman Sachs's Cohen gives price/earnings fantasy" and "24-Aug-10 News -- Ariel's Bobrinskoy gives price/earnings fantasy.")

People ask me how I can be so certain that I'm right, and here you can see the reason. The arguments about P/E ratios are not strange or exotic or overly complex. They're very simple, based on common sense and Economics 1.01.

If I were wrong, then somebody would have explained why by now. Somebody would have explained why P/E ratios will never again return to 1980 levels, or why the Law of Mean Reversion is suddenly wrong, for the first time in history.

And now we have a new quantitative easing program that apparently is specifically targeted at expanding the stock market bubble and other asset bubbles. This approach has succeeded for last couple of years -- and frankly has succeeded much better than I ever expected.

But that can't go on forever. There's another law of Economics 1.01 that I like to mention: The Law of Diminishing Returns. In 2007, all Bernanke had to do was lower interest rates by .5%, and that was enough to push the stock market up. Today he has to promise $600 billion in QE. Each new monetary program has to be significantly bigger than the last one in order to get the same effect.

So the Fed is plowing ahead, ignoring the realities of Economics 1.01 by creating more and larger imbalances. One day soon, the price will have to be paid, and the price will be far higher than it would have been without all of these monetary experiments.

Here's one thing that you can be absolutely sure of: Ben Bernanke knows what the Law of Mean Reversion is, and understands its consequences. He's probably taught about it dozens of times as a Professor of Economics at Princeton. But he certainly never addresses it, which perhaps means that he's just putting out spin, which would make him the same as other Washington politicians after all.

Other unanswered arguments

The simple Economics 1.01 arguments outlined above are never dealt with, so it's not surprising that the more complex arguments that I've raised are never dealt with either.

One issue that I've discussed many times and that is rarely addressed in the financial press is that there are hundreds of trillions of dollars of synthetic assets in portfolios around the world. This is not a figure I made up, or that I dreamed about one night. This is a figure that the Bank of International Settlements reports on a regular basis. These include several tens of trillions of dollars in collateralized debt obligations (CDOs) and credit default swaps (CDSs), as well as several hundred trillion in interest rate swaps and other synthetic securities.

When these are discussed in the financial press, it's always with the tone that these are perfectly safe, and that there's no chance of a chain reaction of bankruptcies that would crash the global financial system.

But even if you believe that, it's still true that all of these portfolios are being "deleveraged," meaning that these hundreds of trillions of dollars of synthetic securities are being dissolved. Every time just 1% of these synthetic securities are dissolved, that reduces the amount of money in the world by several trillion dollars.

So a QE program of $600 billion cannot possibly compensate for that much deleveraging.

The generational argument

Bernanke's essay says that deflation is a greater risk than inflation. He points out that previous QE programs have not resulted in inflation, and that this one wouldn't either:

"Our earlier use of this policy approach had little effect on the amount of currency in circulation or on other broad measures of the money supply, such as bank deposits. Nor did it result in higher inflation. We have made all necessary preparations, and we are confident that we have the tools to unwind these policies at the appropriate time. The Fed is committed to both parts of its dual mandate and will take all measures necessary to keep inflation low and stable."

He's undoubtedly right. But the argument that I always hear -- and that I've heard on tv several times in the last couple of days -- is that inflation occurred in the 1970s, and therefore will occur again in the near future. But that ignores the fact that if inflation were going to occur, then it should have occurred already.

I've been writing since 2003 that we're in a deflationary spiral, and that I expect the CPI to fall by 30%. I've pointed out that interest rates have been extremely low for most of the decade, and that if inflation were to occur, then it would have occurred already.

The 1970s argument brings us to the generational analysis. As I've said many times, economists cannot explain why the tech bubble began in 1995 -- why it began at all, and why it didn't begin in 1985 or 2005 instead. The reason is actually perfectly obvious -- because the 1990s decade was the time when the risk-averse survivors of the 1929 crash and the Great Depression all disappeared (retired or died), and were replaced by risk-ignorant Boomers in top management positions.

This explanation is incredibly obvious, just as obvious as the fact that P/E ratios will have to return to 1980s levels. But economists and journalists seem to have some mental incapacity that doesn't let them grasp the simple concept that the Great Depression survivors all retired in the 1990s.

For the same kind of generational reasons, the 1970s were different from today.

In the 1970s, all the new businesses that had been created in the 1930s were reaching their peak of entrepreneural creativity and productivity, and were competing for the best people by paying higher salaries. I personally recall a friend who left the company I was working for (Digital Equipment Corp.) for a job at another company, then moved to a third company, then finally came back to DEC. In the space of a year, she had come back to the same job with roughly a 50% increase in salary.

Nobody in his right mind believes that anything like that could ever happen today. By the 1980s, the Generation-Xers were entering the marketplace, with a sense of entitlement that led them to claim that they should be able to have anything they wanted without having to work for it. Today, the businesses that were thriving in the 1970s are old and stale. In America, we particularly see this sense of entitlement today in labor unions. Perhaps the worst case of all is the public sector unions in France, calling nationwide strikes to try to stop a pension reform that would raise the retirement age from 60 to 62.

Today, the whole work ethic has changed from the 1970s. As we've illustrated many times, especially in the financial community, and among politicians and journalists, instead of working harder, people are willing to screw other people for their own gain.

That's why what you hear on CNBC and Bloomberg TV these days is so absurd. You hear that if the Fed does something, or if Congress passes such and such a law, or if President Obama gives such and such a speech, then investors will be "reassured" and they'll develop anew an "appetite for risk."

I hear this all the time, and it always makes me want to vomit. The current Generation-X and Boomer investors who were formerly so risk-ignorant have now become extremely risk averse, and will remain so for the rest of their lives.

To quote a cautionary tale that I heard decades ago: If a cat jumps onto a hot stove and gets burned, then he'll never jump onto a hot stove again. But he'll never jump onto a cold stove either.

That's what happened to today's investors. They're deleveraging like mad, and have no intention of investing their own money in new factories or new employees. The only ones who are investing are those who stand to make fat commissions by investing other people's money.

Predictions of inflation and hyperinflation are part of the same fabric of deception that causes analysts to lie about price/earnings ratios. If hyperinflation were to occur, then the stock market and commodities bubbles might be justified. But the reality is that we're headed for deflation, and Ben Bernanke realizes that as well.

Thus, the new round of QE will not create jobs, and will not create inflation. It will continue to create new imbalances that will worsen the global financial crisis when it finally arrives.

(Comments: For reader comments, questions and discussion, see the 4-Nov-10 News -- Fed announces $600 billion quantitative easing thread of the Generational Dynamics forum. Comments may be posted anonymously.) (4-Nov-2010) Permanent Link
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3-Nov-10 News -- The political realignment continues

Chaos in Europe: Will Turkeys vote for Christmas?

Big Republican 'wave' signals more realignment to come

At the time that I'm writing this, on Tuesday evening, it appears that the Republicans will score a massive political victory over the Democrats in the midterm elections.

I'm reminded of what happened two years ago, when the Democrats scored an even more massive victory over the Republicans.

After Barack Obama had been elected, I mentioned that the political bickering was going to get worse. A couple of people said, "That can't be right. The Democrats are in charge of the White House and both houses of Congress. Why should there be bickering?"

And yet, the conflict and paralysis in Washington have only gotten worse. Each side puts spin on it to blame the other side, but the bottom line is conflict.

As I started pointing out many, many years ago, this conflict is generational, not political. The survivors of World War II, the GI Generation and the Silent Generation, did great things -- they created the United Nations, World Bank, Green Revolution, World Health Organization, International Monetary Fund, and so forth. They created these organizations and managed them for decades with one purpose in mind: That their children and grandchildren would never have to go through anything so horrible as the Great Depression or World War II.

These organizations would make sure that everyone would be fed, everyone would be healthy, poverty would be eliminated, and conflicts would be settled without war.

Throughout their lives, the people in those generations worked together, even when they were on opposite political sides, to protect America and the world from the excesses and xenophobia that led to the Great Depression and World War II.

As late as the 1980s, the Republicans and the Democrats cooperated with each other to change the Social Security system to make it a sounder system. After that, they cooperated again to specify new rules to control the budget deficit. And in 1996, Democratic President Bill Clinton, saying that "the era of big government is over," cooperated with the Republican congress to eliminate the welfare entitlement.

No one would ever think that any of this is possible today. People talk about a "negotiating process," but that's a joke. Nobody wants to compromise, even with people of his own party. Politicians are becoming more extreme. "The center cannot hold," to quote an old phrase, and "the center is collapsing."

The Republicans are experiencing euphoria right now, but cold reality is going to hit them soon. People will soon discover that nothing's changed, and that there are still no solutions. The economy is going to worsen, xenophobia is going to become more apparent, and tensions will increase around the world. And now the Republicans will have to take part of the responsibility.

Some pundits are saying that the Tea Party will become less relevant after this election. This assumes that the political realignment is over, but it's far from over. What's more likely is that the Tea Party itself will split into bitterly conflicting factions.

From the point of view of Generational Dynamics, we're in the "post unraveling" phase of the Crisis era, a time when the stale ideas of the previous Awakening era (the 1960s) are still in play, even though they're not working any more.

The true crisis will begin with the "regeneracy," one or more events that are so horrible that they regenerate civic unity again, for the first time since the end of the last crisis war (WW II). These might include a major global financial crisis, a major terrorist attack on American soil, or a major military defeat abroad -- probably all three of these, leading to a "Clash of Civilizations" world war.

When the existence of the nation is truly in peril, as it will be again soon, that's the time the people will finally put aside their outdated ideas and their bitter quarrels, and will unite again for survival.

And, assuming that the nation survives the crisis, the political realignment will be complete when the crisis reaches a climax, and the nation enters a Recovery era.

Chaos in Europe: Will Turkeys vote for Christmas?

Although American investors don't yet seem to have noticed, Europe is rapidly speeding toward a major new crisis.

The news on Tuesday is that investors are dumping Irish and Greek bonds, and pushing yields (interest rates) on those bonds to record highs, according to MarketWatch. Yields on Ireland's 10-year bonds are up to 7.17%, and are up to 10.67% on Greece's 10-year bonds. You'll recall that these are the yields that led to the euro crisis last spring, resulting in the May bailout. It's increasingly clear that the bailout didn't work.

This situation has caused political chaos in Europe similar to the political chaos in the U.S. A lot of the conflict centers around the European Financial Stability Facility (EFSF) that was set up after the bailout of Greece to provide funds to any future euro country in trouble.

According to EuroIntelligence:

"EU leaders trigger another bond market crisis

EU leaders have concluded another agreement, and once again the bond markets panic. We have been warning readers of a gulf between the German position on future crisis resolution in the eurozone and that of other EU member states, and that the fundamental conflicts of the first half of this year remain unresolved. The summit only agreed some minimum parameters for Herman van Rompuy’s next task force, but the difference of the positions on the crisis resolution mechanism remain extreme. Germany wants a bail-in mechanism to replace the EFSF, as a result of which European bond spreads have risen again. Investors understand that the German proposal will dramatically increase the probability of future sovereign default in the eurozone. The EFSF is not a solution to a crisis resolution, it is merely a temporary arrangement. ...

(This whole chain of events shows clearly that EU leaders continue to underestimate the complexities of a monetary union. The structure is simply not capable of handling default, while simultaneously ruling out bailout and exit. The resistance to the German plans in the European Council remains severe, and we simply cannot see Greece, Ireland, Spain, or Portugal agreeing to a crisis resolution mechanism, whose main effect would be to drive up their bond rates. It would be like turkeys voting for Christmas. Expect this to run well into next year. In fact, we would not be surprised if this debate were to continue right until the expiry of the EFSF in 2013.)"

I would expect to see a crisis arise well before 2013.

In fact, it may well be there's panic-selling going on right now with Greek and Irish bonds, just as there was a panic last spring. If that situation repeats itself, then it's not clear whether the Europeans will find a way to agree on additional bailouts -- especially since the Germans will, once again, be asked to carry most of the load, something that they'll refuse to do.

Additional links

Although India has suffered numerous terrorist attacks in recent years, they've been perpetrated by home-grown jihadist or Hindutva terrorists, or by Pakistani militia (Lashkars), but not by al-Qaeda. But now, al-Qaeda is intent on spreading into India, in order to exploit differences between Pakistan and India, especially in Kashmir. Jamestown Foundation

A wave of multiple parcel bombings targeting embassies in Athens has forced Greek authorities to halt all shipments of mail and packages. Police have declined to name their suspected perpetrators, other than it is likely a local anarchist group unconnected to mail bombs from Yemen. Anarchist and Communist groups have been increasingly active in Greece in the wake of the severe austerity program that's been implemented as a condition of last May's bailout. CS Monitor

French President Nicolas Sarkozy and British Prime Minister David Cameron signed new treaties on defense cooperation. "Today we open a new chapter in a long history of co-operation on defence and security between Britain and France," said Cameron. The plan is that they'll use each others aircraft carriers for training and military operations, and share resources and facilities for nuclear testing and use of transport aircraft. Call me skeptical. These two countries have been bitter enemies at least since 1066, fighting the Hundred Years War, the War of the Spanish Succession and Napoleonic Wars, and others, and a lot of those old feelings are still around. BBC

The Mideast peace "process" is frozen, Israel is building new settlements in East Jerusalem, and the Palestinians are sitting around, wondering what to do next. We've mentioned all the possibilities before: appeal to the U.N. for an international mandate to create a Palestinian state; dissolve the Palestinian Authority, and force Israel to provide security in the West Bank. There's also the proposal floating around where the Palestinian state would include East Jerusalem, but the Israelis would lease back some of the land for 40-80 years. Once again we have chaos and paralysis, which is the theme of today's posting. Jewish Week

(Comments: For reader comments, questions and discussion, see the 3-Nov-10 News -- The political realignment continues thread of the Generational Dynamics forum. Comments may be posted anonymously.) (3-Nov-2010) Permanent Link
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2-Nov-10 News -- Russia losing control of the Caucasus

Following up: Framingham debate and David Kotok

Russian official admits it's losing control of the Caucasus

Several analysts are commenting on a remarkable speech on October 25 by a high Russian official, Ivan Sydoruk, the deputy Procurator General of the Russian Federation. His speech contradicts the common Russian line, and specific statements by Prime Minister Vladimir Putin, that terrorism in Russia's southern provinces, especially Chechnya, in the North Caucasus, is under control.

Northern Caucasus -- Russia's southern provinces - Sochi 2014 logo at left is site of 2014 winter Olympics
Northern Caucasus -- Russia's southern provinces - Sochi 2014 logo at left is site of 2014 winter Olympics

The analyst Paul Goble quotes Sydoruk as saying that, contrary to the claims that militant attacks are dying off, in 2010, "the number of extremist crimes had increased by more than four times [over 2009], and that 70 percent of these 352 acts had taken place in Chechnya."

Sydoruk blames the situation on the disastrous economic situation. As of July 1, there were some 449,000 unemployed in the North Caucasus, some 40% of the population, creating a breeding ground for militants and extremists.

Thus, although Russian forces had killed over 400 militants in the last nine months, and prevented "more than 50 terrorist acts," the militants are quite able to recruit replacements, find money and arms, and enjoy some support in the population. According to Sydoruk, "Give some one of them a 100 dollars and he will do whatever you want."

Putin's hand-picked president of Chechnya, Ramzan Kadyrov, has been blaming Georgia for backing the terrorist attacks in Chechnya, providing weapons and financial support.

However, Sydoruk contradicts this, according to an analysis by Jamestown Foundation.

Sydoruk completely contradicted Kadyrov's accusations against Georgia, stating that most of the weapons in the hands of the militants came from Russian military units.

It's quite unusual for a high Russian official to step out of line like this. His comments are consistent with other, more anecdotal reporting from the Caucasus, and are more credible than the standard Russian line. Still, it won't be surprising if he's digging salt mines in Siberia next year.

As we've been reporting lately, the North Caucasus is becoming increasingly lawless. (See "30-Oct-10 News -- Caucasus terrorism / politics becomes embroiled in 2014 Olympics" and "20-Oct-10 News -- 'North Caucasus Emirate' attacks Chechnya's parliament building.")

Furthermore, this is in the context of the very dramatic reality that the 2014 Russian Olympics will be held in the sea resort of Sochi -- which, by incredible coincidence or design, is the site of a battle that occurred exactly 150 years earlier, in 1864 -- a well-remembered battle where ethnic Russians massacred ethnic Circassians, the same Circassians that now live in the North Caucasus provinces of Adygea, Karachay-Cherkessia and Kabardino-Balkaria. Tensions are bound to continue to rise.

Video of Framingham debate

As I wrote in "26-Oct-10 News -- Xenophobia in Framingham, Massachusetts," last week I moderated a debate among three candidates Framingham representative to Beacon Hill.

The video of the debate is at

This debate is entirely on local issues, but is of interest to a wider audience for only one reason: The debate was dominated by the immigration issue, because of a large Brazilian population in the town.

As I wrote last week, this town debate is a microcosm of the debates being held around the world on immigration. Although the details may be different, the same debate in occurring in France over the Roma Gypsies, in Belgium over the Muslims, and in Hungary over the Jews.

As I've been writing for years, the level of all forms of xenophobia around the world has been increasing for the first time since the 1930s, and has been increasingly particularly quickly in the last few months. This led to a world war in the 1930s, and it will lead to a world war again today.

More on David Kotok

Several days ago, I posted "24-Oct-10 News -- The mysterious case of David Kotok," concerning an accusation of plagiarism of a letter by Kotok that appeared in a newsletter by John Mauldin that I had quoted the week before in "19-Oct-10 News -- Analyst John Mauldin is turned by the foreclosure issue."

I received an e-mail message from Samuel A. Santiago, Managing Director & VP of Information Technology of Kotok's firm, Cumberland Advisors. The e-mail message had an attachment of a PDF file containing a detailed explanation of what happened, and pointing out that the plagiarism charge was incorrect. Readers may download the PDF file to read the full explanation.

I'm happy to clarify the record on this matter.

Additional links

Ibrahim Hassan Al Asiri (Telegraph)
Ibrahim Hassan Al Asiri (Telegraph)

AQAP's top bomb-making expert, Ibrahim Hassan Al Asiri, is believed to be the person who made the package bombs that were intercepted over the weekend, as well as the bomb used by the "Underwear Bomber" on Christmas day last year. Al Asiri is 28 years old, and is part of a new generation of terrorists who have little patience with Osama bin Laden's grand plans, and want some kills right away. Telegraph

In the wake of the attempted package bombing, Germany has banned all flights from Yemen, including passenger flights, from landing at its airports. Bloomberg

Turkish authorities have still not identified the perpetrators of the suicide bomb attack in Taksim Square in Istanbul on Sunday. PKK Kurd terrorists have denied involvement, but it's still possible that a PKK splinter group is responsible. Al-Qaeda linked terrorists have been eliminated, but a far left organization may still be responsible. Today's Zaman

Thousands of refugees who fled to Quetta in Pakistan's southwestern Balochistan Province to escape the floods are now stranded there and unable to get home because they lack the money and have been given no government help. Reuters

Scientists say that robot sex partners are coming soon. Op Ed News

(Comments: For reader comments, questions and discussion, see the 2-Nov-10 News -- Russia losing control of the Caucasus thread of the Generational Dynamics forum. Comments may be posted anonymously.) (2-Nov-2010) Permanent Link
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1-Nov-10 News -- Al-Qaeda shifts to 'more realistic' terrorism

Suicide bombing in Istanbul, Turkey

Al-Qaeda's failed bomb attempt reflects evolving strategies

The strategies of both al-Qaeda and the west are going to have to evolve, in the wake of the failed bomb attempt

It's ironic that this bomb attempt occurred just two days after a British Airways executive was complaining that airline security had become too onerous, thanks to unreasonable pressure by the Americans, as we reported yesterday.

Printer plot bomb: Explosives were hidden in toner cartridge (Telegraph)
Printer plot bomb: Explosives were hidden in toner cartridge (Telegraph)

But now, new developments in the failed bomb attempt will require that the west will have to strengthen security in some areas.

One development is that U.S. national security adviser John Brennan is expressing concern that there may be other package bombs. Associated Press reports that he said that "it would be very imprudent ... to presume that there are no [other packages] out there." He said that "We currently have put a hold on any cargo that is coming to the United States that originated in Yemen,"

In fact, the devices in the packages were very professional and sophisticated, enough so that they passed through multiple screenings at the Sanaa airport. The devices would not have been detected at all, had it not been for the tipoff by Saudi intelligence.

The second development is the discovery that at one of the packages was in cargo hold of a passenger flight for part of its journey, and that the bomb was " designed to blow up passenger jets and threatened "another Lockerbie," according to the Telegraph.

The result is that airline security procedures will have to be updated and perhaps strengthened, rather than relaxed as some people had hoped. In particular, new procedures for package delivery will have to be implemented.

On the other side, al-Qaeda's strategy is changing as well.

As we reported yesterday, al-Qaeda's center of gravity has shifted from the Pakistan tribal areas to the deserts of Yemen. This led to the merger last year of the Saudi and Yemen branches of al-Qaeda into Al-Qaeda on the Arabian Peninsula (AQAP).

From the point of view of Generational Dynamics, al-Qaeda's basic long-term strategy has not changed. The two most important events for the Muslim world in the last century were the collapse of the Ottoman Empire in 1922 and Iran's Great Islamic Revolution of 1979. Al-Qaeda's objective, masterminded by Osama bin Laden in the 1980s, has been to replicate the Iran's revolution to create a Sunni Muslim government in another country.

This has now been tried in Iraq, Afghanistan, Pakistan, Uzbekistan, Yemen, Somalia and elsewhere, and has failed so far. In fact, since the Taliban were defeated in the war following 9/11, it could be said that al-Qaeda has actually lost ground in the last ten years.

Thus, it's not surprising that al-Qaeda is making some dramatic changes in strategy.

According to Jonathan Stevenson, a professor at U.S. Naval War College, and Steven Simon of the Council on Foreign Relations, writing recently in the Washington Post, al-Qaeda has decided that it lacks the capacity "to mount sophisticated and coordinated attacks that would match, let alone exceed, the innovation or shock value on display on Sept. 11, 2001, or even in the USS Cole operation the year before."

Thus, the new al-Qaeda understands its limitations, and is adopting "more realistic means of achieving its grand objectives." According to the authors:

"With the help of these so-called "cleanskins," who are difficult for Western security services to detect, al-Qaeda's opportunistic, pragmatic leadership has embraced urban warfare of the sort pioneered by terrorists decades ago: low-intensity, IRA-style operations in densely populated areas, using both conventional military weapons (such as assault rifles and rocket-propelled grenades) and standard terrorist weapons (such as improvised explosive devices). This, not simultaneously blowing up airliners or destroying skyscrapers, was the mode of jihad envisioned by Abd al-Aziz al-Muqrin, the late leader of the jihad in Saudi Arabia and the author of the appropriately named turn-of-the-century al-Qaeda combat manual "The War Against Cities."

This change in strategy to "low-intensity, IRA-style operations in densely populated areas" should exclude blowing up airliners, according to the writers, but in fact, shipping UPS or Fedex packages with bombs fits the objective of creating IRA-style chaos without spending much money or resources.

"The long-range implications of this evolution are sobering. Al-Qaeda's leaders are realizing that they can panic and disrupt Western society the old-fashioned way -- but on a global level. If they succeed, their new strategy will inspire increasingly rigid security measures and rising paranoia, which will almost inevitably drive a wedge between Muslim and non-Muslim Americans. Given our increasingly rancorous, polarized politics and the politicization of counterterrorism, al-Qaeda's foray into urban warfare could make effective governance and the preservation of constitutional norms much tougher propositions than they have been so far in the age of terror."

This brings us back to a theme that I've been emphasizing for years: the political confrontation and xenophobia that's been increasing in all forms around the world is leading to a new world war.

For al-Qaeda, the mutual xenophobia between Muslims and non-Muslims serves al-Qaeda well. As long as American and European armed forces have a presence in the Mideast, doing everything from fighting Taliban terrorists to helping Pakistani flood victims, and as long as Islamist terrorist activities are killing far more Muslims than non-Muslims, there is little chance of triggering the kind of Iran-style revolution that's the objective of al-Qaeda.

If Stevenson and Simon are correct, then "IRA-style" terrorism or bringing down an airplane with a mailed package bomb will meet al-Qaeda's objectives by dividing Muslims and non-Muslims at little cost. If al-Qaeda is really successful, then these kinds of activities will force American and European armed forces to withdraw from Iraq and Afghanistan, leaving them free to bring about the kind of revolution that that Osama bin Laden envisioned over twenty years ago.

Suicide bombing in Istanbul, Turkey

A suicide bomber struck Taksim Square in Istanbul Turkey on Sunday at 10:30 am, critically wounding two and injuring 32 others, according to the LA Times. Taksim Square is a vast transportation and commercial hub, and the city's busiest location.

Nearly half of the injured were police officers.

PKK Kurdish separatist terrorists are suspected in the bombing, but they're not the only suspects. The bombing bears the hallmarks of an al-Qaeda attack, and extreme left-wing groups are also suspected, according to the Guardian.

Additional links

The bomb packages in the failed terrorism attack were addressed to two Jewish synagogues in Chicago. Chicago area Jewish organizations remain on high alert. Chicago Tribune

When a US delegate once confronted a Chinese diplomat about Beijing's uncompromising support for Pakistan, the Chinese reportedly responded with a heavily-loaded sarcastic remark: "Pakistan is our Israel". Al-Jazeera

On September 2, there was a fatal plane crash in Dubai of a UPS mail cargo flight. The UAE claims that there was nothing suspicious about the crash, but the US is going to open an investigation to see if it could be a precursor to this weekend's failed bomb plot. Debka

Russian president Dimitry Medvedev has met in Hanoi with Vietnamese leaders to seal a $5 billion agreement to build Vietnam's first ever nuclear power plant. VOA

China's recent embargo on exporting rare earth minerals is causing more deals to be made by nervous neighbors. A few days after India promised to supply Japan with rare earth minerals, Vietnam has now signed a deal to supply Japan with them as well. BBC

This is incredible. Recall that Bernie Madoff swindled investors out of something like $60 billion in a Ponzi scheme. The trustee overseeing Madoff's bankruptcy is supposed to recover money to be returned to the swindled investors. In the six months ending September 30, he recovered $849,000 to be returned to the victims, and he spent $26.9 million to do it. Bloomberg

(Comments: For reader comments, questions and discussion, see the 1-Nov-10 News -- Bomb plot shows al-Qaeda shift from Pakistan to Yemen thread of the Generational Dynamics forum. Comments may be posted anonymously.) (1-Nov-2010) Permanent Link
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