2-Oct-10 News -- Mideast peace talks appear set to fail on Wednesday - 2-Oct-2010 - Generational Dynamics

Israel has refused to extend the settlement moratorium that was demanded by the Palestinians as a minimum condition for continuing the Mideast peace talks.

Palestinian president Mahmoud Abbas agreed to continue the peace talks for one more week, after the moratorium expired last Sunday, as we reported. The decision was to be made on Monday, October 4, at a meeting of the Arab League in Cairo.

However, at the request of the Egyptians, the Arab League meeting was postponed to Wednesday, October 6, to give the peace talks an additional two days, according to Ma'an.

Abbas is reported as saying that he's going to resign from the peace talks on Wednesday, according to the Arab News.

In fact, his statement to one editor was "This is the last time you are traveling with me," said on board his presidential plane, implying that he was going to resign as Palestinian Authority president on Wednesday.

Abbas is also quoted as saying that he will "make historic decisions" during the meeting of the Arab League.

His resignation as president actually would not be much of a surprise, in view of the radio interview he gave two months ago, in which he said, "I cannot go on ruling, and I need to rest; I'm at the age where I can't continue to lead." (See "21-Aug-10 News -- Mideast peace talks to begin on Sept 2.")

Ireland's debt crisis approaches a climax

Europeans were shocked this week to learn that it would cost some 50 billion euros to bail out Ireland's banks. That's 32% of Ireland's entire GDP, according to the Wall Street Journal (Access). As you can see from the graph, when the new debt is added to the existing gross debt, the total will exceed GDP.

If America's banks had to be bailed out by 30% of the GDP, it would cost over $4 trillion, and amount that would dwarf the TARP programs that were actually used to bail out America's banks.

The Irish themselves are in a state of despair over this, as can be surmised from the following Irish Times editorial:

"In the long history of this State, it is a time of deep despair with the political system and parties. Mindful of the need to be conscious of the national interest, this is not said lightly. Ireland is being ridiculed, denigrated and attacked on an almost daily basis in the Financial Times , the New York Times , the International Herald Tribune and other national newspapers and websites abroad. It is no exaggeration to say that we are in a state of emergency.

The public has adopted an extremely pessimistic and potentially damaging view of the State’s economic prospects. Even before the Government revealed details of the horrendous cost of rescuing the banks last Thursday, seven out of ten voters had concluded that the economic corner had not been turned and worse was yet to come. Their attitude was more downbeat than it had been last June. ...

Uncertainty over the future is accompanied by a widely held belief that changing the Government would make no difference to Ireland’s economic prospects. This lack of confidence in the ability of the Opposition parties to extract the State from the financial morass is echoed by a general unwillingness to believe officials when they say Ireland’s bank liabilities are “manageable”. Seven out of ten voters believe bank liabilities are not manageable and this negative attitude is most engrained among low-income respondents."

Readers may recall that in May, the EU approved a "gobsmacking" trillion dollar bailout plan for Greece, and to be used for any other eurozone country in trouble. (See "11-May-10 News -- Europe's super-nuclear bailout.")

Theoretically, that should be plenty of bailout money to cover both Greece AND Ireland. But as I reported at the time, and many other commentators noted as well, that plan was little more than a public relations gimmick. It was a plan to loan Greece just enough money to make its credit card payments for a while, after which Greece would still be headed for bankruptcy.

Even so, the plan was deeply resented by the Germans, who did not want to be financially punished for the profligacy of the Greeks. So there's little hope for launching a similar publicity stunt for Ireland.

One approach favored by many Europeans is for Ireland to raise its corporate income tax. It's currently the lowest in Europe, at 12.5%, and with many American corporations located in Ireland to take advantage of the low tax rate, the politicians would see a corporate income tax rise as free money, and a way to stick it to the Americans.

However, the Irish politicians see raising the corporate income tax rate as a sure way of driving those same corporations out of the country, creating more unemployment in Ireland. Thus, the Irish Examiner quotes Finance Minister Brian Lenihan as saying, "The Government has always made it clear that the corporation tax rate will remain at 12.5%. The 12.5% corporation rate is a cornerstone of the Irish industrial policy."

The plan favored by the Irish politicians is the "haircut." That word is a euphemism for "restructuring," which is a form of "bankruptcy." Under this plan, the bondholders, the people to whom Ireland owes tens of billions in debt, would take a 30-70% haircut -- which means that they would be repaid only a fraction of what they're owed.

Obviously the bondholders themselves are not in favor of that solution. The Russian billionaire Roman Abramovich is one of those bondholders, and he's threatening legal action, according to Bloomberg.

And at some point this is going to enter the consciousness of Wall Street investors, who have been buying stocks with reckless abandon, and who will then be saying, "Why should a small economy like Ireland's have any effect on Wall Street?" Bad news is always good news to these people.

From the point of view of Generational Dynamics, nothing has changed since I started discussing this in 2002: The stock market has been in a bubble since 1995, and is still overpriced today by a factor of almost 200%, so by the Law of Mean Reversion, there will be a stock market crash to a range below Dow 3000. (See "Updating the 'real value' of the stock market.")

Additional links

Former Pakistan President and military leader Pervez Musharraf announced at a press conference in London on Friday that he's starting a new political party and intends to be the leader of Pakistan again. His new party will be called the All Pakistan Muslim League. Guardian

The May 6 "flash crash," which saw the stock market fall by 10% and then recover a few minutes later, was apparently triggered by a single large computerized trade that was not out of the ordinary, according to a report by federal regulators. The trade was driven by a computerized algorithm that was ordered to sell 75,000 securities contracts, regardless of the price. Within a few moments, other computerized trading algorithms "noticed" the sale and created a kind of computerized panic. Wall Street Journal (Access).

When teachers in Peabody, Mass., send kids home with notes to their parents, the notes will contain ads for pizza shops, ice cream shops, dance and karate schools. Boston Globe

CNN anchor Rick Sanchez, who has frequently been openly hostile to anyone who opposed President Obama, has been fired by CNN after he ranted in an interview that Jon Stewart was a bigot and made sarcastic remarks about Jews as an 'oppressed minority.' NY Times

Generational Dynamics Web Log for 2-Oct-2010
2-Oct-10 News -- Mideast peace talks appear set to fail on Wednesday

Mideast peace talks appear set to fail on Wednesday

Ireland's debt crisis approaches a climax

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Generational Dynamics Web Log for 2-Oct-2010 2-Oct-10 News -- Mideast peace talks appear set to fail on Wednesday

Mideast peace talks appear set to fail on Wednesday

Ireland's debt crisis approaches a climax

Additional links

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Generational Dynamics Web Log for 2-Oct-2010
2-Oct-10 News -- Mideast peace talks appear set to fail on Wednesday