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

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Generational Dynamics Web Log for 20-Feb-2010
20-Feb-10 News - Russia 'alarmed' at Iran

Web Log - February, 2010

20-Feb-10 News - Russia 'alarmed' at Iran

Unsustainable budget deficits in US and UK.

Russia losing patience with Iran's "very alarming" nuclear non-cooperation

"We are very alarmed and we cannot accept this, that Iran is refusing to co-operate with the IAEA," said Sergei Lavrov, the Russian foreign minister, as quoted by The Telegraph.

"Some questions remain on the table and Iran has so far not reacted to them but they are rather serious and we need to understand how several documents concerning military nuclear technology found their way to Iran," Lavrov added. "Clear explanations are needed."

These are the strongest statements so far by a high-level Russian official about Iran's nuclear program.

An analysis by the Moscow Times quotes Russia's Security Council secretary, Nikolai Patrushev, as saying, "Everything has its limits, including patience." Accorindg to the article, Russian officials are increasingly willing to support "crippling UN sanctions" against Iran.

This is a significant change of position by Russia.

In order for the UN Security Council to approve new sanctions against Iran, both Russian and China would have to agree. Thus, Russia's change of position may simply be posturing, since no new sanctions are going to be imposed, since China is not going to agree.

The real game being played here is Iran's "Bring it on!" to Israel, with the desperate hope of provoking a military attack on Iran's nuclear installation in order to unite Iran behind the hardline government, and end the Green movement demonstrations and protests.

Israel, which is in a generational Crisis era, might, in fact, panic and launch such an attack. Everyone is aware of that possibility, including Russia. To the purpose of Russia's statement may well be to convince Israel to hold off.

Still, the level of international tension over Iran's nuclear program is growing and, in such circumstances, the possibility of misjudgment or miscalculation is great.

Unsustainable spending trends by Federal Government

Michael "Mish" Shedlock has a very interesting graph in his Global Economic Analysis blog, showing the receipts and outlays of the Federal government:

Receipts vs. Outlays by Quarter 1999 Q1 Thru 2009 Q4 <font face=Arial size=-2>(Source: Mish Shedlock)</font>

Receipts vs. Outlays by Quarter 1999 Q1 Thru 2009 Q4 (Source: Mish Shedlock)

Shedlock's article points out that the situation is unsustainable, and indeed it is. However, I'd like to discuss a number of interesting points about this graph.

First, the technical issue is that the receipts (shown by the blue lines) are highest each year around April 15, when people pay their income taxes. So ignore the annual spikes in the receipts, and just look at the overall trends.

From the point of view of Generational Dynamics, what's important about this graph is the long-term trend. Unfortunately, the above graph only goes back as far as 1999, but in a previous article I've posted a graph that goes back to 1971. (See "US tax revenues fall sharply, the most since 1932. " That graph is a little different: It's annual rather than monthly, and it shows values as a percentage of GDP, rather than as absolute values. But it illustrates the same long-term trend.)

The common wisdom these days is that the growing budget deficits over the last ben years were caused by the Iraq war. The fact that this is completely impossible (the deficit started growing in 2001, long before the 2003 invasion of Iraq) doesn't seem to have any effect on the "common wisdom."

This is a much more important point than just some fatuous political argument. This is crucial to understanding what's going on today.

If you look at the above graph, you can see that outlays follow a fairly steady growth path, not materially affected by the Iraq war. What changes are the receipts, which start to crash along with the Nasdaq dot-com bubble crash that began in 2000.

Receipts began to spike up in 2005 with the real estate and credit bubbles, but then crashed again severely after the credit crunch began in August, 2007.

So the point is that the variations in the budget deficit in the United States are almost entirely dependent on tax receipts, and tax receipts are almost entirely dependent on growing and bursting of bubbles. And growing and bursting of bubbles is caused by generational changes, as I've discussed many times before. (See "Markets fall as investors are increasingly unsettled by bad economic news.")

As you can see from the graph, there was a change last year. Receipts fell precipitously because of the credit crunch and the deflationary spiral, and outlays increase substantially, because of the stimulus packages.

The stimulus packages were supposed to "stimulate" growth, which would have once again increased receipts. But that isn't happening, and it won't happen because of a major generational change that's occurring. Today's Boomers, Gen-Xers and Millennials are becoming extremely risk-averse, just like their parents, grandparents and great-grandparents in the Great Depression. As Shedlock says, the resulting situation is "unsustainable."

And that's occurring even though we haven't even seen the worst yet. As I've said many times, the stock market has been in a bubble since 1995, substantially overpriced, compared to the long-term trend values. (See "How to compute the 'real value' of the stock market.")

By the Law of Mean Reversion, the stock market is going to have to fall well below Dow 4000, and stay there for a roughly comparable length of time (15 years). This is a mathematical certainty, despite the fact that your broker is telling you that the stock market can only go up.

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The United Nations climate chief Yvo de Boer is resigning, after the failure of the Copenhage climate change conference. Der Spiegel says that his mediating skills are going to be hard to replace, as the climate change political movement continues to melt down.

Also melting down is Europe's economy. Economists have pretty much declared that the financial crisis is over, and they're expecting jobs to increase and deficits to disappear. So they were shocked to learn that UK's government had borrowed 4.3 billion pounds last month, when they had expected the economy to have a surpruls of 2.8 billion. (Times Online.)

An opinion column by HDS Greenway in the NY Times seems to say that the reason that there hasn't been a new al-Qaeda terrorist attack on American soil is because Osama bin Laden and Ayman al-Zawahiri are looking for something that will "alter the course of history." Thus, they called off an attack on the New York subway system, to hold off for "something better."

(Comments: For reader comments, questions and discussion, see the 20-Feb-10 News - Russia 'alarmed' at Iran thread of the Generational Dynamics forum. Comments may be posted anonymously.) (20-Feb-2010) Permanent Link
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Generational Dynamics Web Log for 20-Feb-2010 20-Feb-10 News - Russia 'alarmed' at Iran

Russia losing patience with Iran's "very alarming" nuclear non-cooperation

Unsustainable spending trends by Federal Government

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Generational Dynamics Web Log for 20-Feb-2010
20-Feb-10 News - Russia 'alarmed' at Iran