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This is comparable to the 1962 Cuban missile crisis.
These are extremely tense days in Iran, and especially for president Mahmoud Ahmadinejad:
Now, Russia has told Iran that "a nuclear Iran is considered a direct and indirect threat to Russia's interest... Russia will do everything [necessary] to ensure that this [threat] will not come about." This has created a crisis in Iran-Russia relations, and forced Ahmadinejad to claim that Iran will proceed without Russian help.
From this context came the news, last Saturday, that the Iranian Revolutionary Guard, a vestige of Iran's 1979 Islamic revolution, took 15 British marines and sailors hostage at gunpoint in the Persian Gulf.
A War of Words
Since that time, the "war of words" between Britain and Iran has been steadily escalating. Britons have been infuriated because the hostages were paraded on TV and forced to "confess" on TV and in letters.
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Iran said that the hostages were being held because of "oppressive" British and US behavior.
As I wrote in my lengthy analysis of Iran's strategy, I've had much more difficulty evaluating Iran's direction than other countries' because Iran is following a somewhat contradictory policy, because Ahmadinejad is far more hardline than the young postwar Iranian generation.
TV analysts are puzzled as well, a couple of them indicating that Iran appears to want to trigger a war.
Kennedy versus Ahmadinejad
As I've previously indicated, the most fruitful way to understand Ahmadinejad is to compare him to American President John Kennedy.
Some people have found this strange, but it's actually a highly relevant comparison: Ahmadinejad became president at the start of Iran's Awakening era, and Kennedy became president at the beginning of America's Awakening era, at a time when the public was still very fearful of a third world war against the Soviet Union and China.
Kennedy was a young "new generation" President, in the "Hero generation" that fought and won World War II. As President, he had to prove that he could stand up to other international leaders, especially the Soviets. And he had to prove that he had learned the lessons of WW II. It was believed (incorrectly) that if Hitler had been stopped early, then WW II could have been avoided; it was American doctrine at the time that Communism had to be stopped early, to prevent World War III.
When Fidel Castro's Cuba became a Communist country right on our doorstep, it was recognized as a significant step toward World War III, and Kennedy had to act. First was the disastrous Bay of Pigs invasion, which Castro defeated.
Then, on October 16, 1962, reconnaissance photos revealed that the Soviets were building long-range ballistic missile sites in Cuba. Kennedy reacted quickly, what became known as the Cuban Missile Crisis.
On October 22, he went on nationwide TV, revealed the discovery of the missiles, and announced a naval blockade of Cuba that would prevent Soviet ships from bringing additional weapons to Cuba.
During the next few days, both the American and Soviet militaries were on high alert, preparing for full-scale nuclear war. On October 28, the Soviets publicly backed down and committed to removing the missile installations. The world breathed a sigh of relief.
Now, the way to understand Ahmadinejad's actions is to relate them to Kennedy's.
Ahmadinejad is a young "new generation" President, in the "Hero generation" that fought in the 1980s Iran/Iraq war -- which Iran lost. As President, he has to prove that he can stand up to other international leaders, especially the Israelis, Americans and British. And he has to prove that he had learned the lessons of the Iran/Iraq war.
The First Iranian Hostage Crisis
There's one more important event to take into account: The original Iranian hostage crisis of 1979-81. After the Iranian Revolution of 1979, Islamic radicals invaded the American embassy in Tehran. 52 Americans were held hostage for 444 days. President Carter refused to take military action, but repeatedly pleaded for release of the hostages on humanitarian grounds, to no avail.
This event was extremely traumatic for the American public. CBS news anchor Walter Cronkite, supposedly the "most trusted" man in America, began each evening's news cast with something like "Today is Tuesday, January 28, 1980, the 136th day of the Iran Hostage Crisis." (Those numbers are made up, but you get the idea.)
That's when the "America Held Hostage" news show debuted on ABC at 11:30 pm each evening, to cover the latest events in the hostage crisis. (After the hostage crisis ended, the show was renamed "Nightline.")
The hostage crisis became a major focus of the 1980 Presidential campaign, with Ronald Reagan running against Jimmy Carter. After Reagan won the election, he and Carter made a secret deal that, during the three months from the election until Reagan took office, Reagan would repeatedly threaten the Iranians with armed force if the hostages weren't freed when he took office. It worked, and the hostages were freed and flown out of Iran at noon, on January 21, 1981, just as Reagan was being sworn in.
You don't hear much about this deception these days, but there was considerable gloating about this at the time. Americans don't recall this today, but I'm willing to bet that Ahmadinejad remembers it.
So when we analyze Ahmadinejad's actions, we have to take all of these factors into account: because of his youth, Ahmadinejad may be unable to back down from a confrontation, and particularly may be unable to simply allow the hostages to be freed, as they were in 1981.
Journalists often talk about Ahmadinejad being "hardline." This word means one thing when you're talking about Osama bin Laden, but when you're talking about Ahmadinejad, it means that he's hardline in the same sense that Kennedy was hardline: At the beginning of an Awakening era, a country will be very hardline on any issue that's perceived to risk a new crisis war (like WW II or the Iran/Iraq war, respectively).
The Opponents
When we compare Ahmadinejad and the current hostage crisis to Kennedy and the Cuban missile crisis, we can see a clear parallel between their behaviors.
But there are clear differences when we analyze their respective opponents.
Kennedy's opponents were the Soviets, specifically the Russians. The last Russian crisis war was the Bolshevik Revolution and the following civil war, ending in the 1920s. Thus, in 1962, Russia was at the end of its generational Awakening era, entering its generational Unraveling era.
As anyone knows who remembers America's last Awakening era, the 1960s-70s, hardline policies just don't survive. In the case of America, President Kennedy was assassinated, President Johnson was forced to decline to rerun, and President Nixon was forced to resign.
Two events of the early 1990s illustrate an Unraveling era: In the Gulf War, when we drove the Iraqis out of Kuwait, we simply left; we didn't go after Saddam in Baghdad. And later, in the "Blackhawk Down" incident, when a helicopter was shot down in Mogadishu, we simply left Somalia. These two events illustrate how any country acts during an Unraveling era.
So Russia was entering an Unraveling era at the time of the Cuban missile crisis, and they backed down. Kennedy's gamble paid off.
But things are very different for Ahmadinejad. His opponents are Britain, Israel and the U.S., all in a generational Crisis era. This fact indicates that it's far less likely that Ahmadinejad's opponents will back down the way Kennedy's opponents did.
How would Britain have acted this past week if it had been in an Unraveling era?
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Actually, a number of commentators have addressed this very clearly. Several have said that Tony Blair might have made a statement to the effect, "As far as we know, the hostages were in Iraqi waters; if they were in Iranian waters, then it was a mistake." That would be a typical "Unraveling era" statement, and it might possibly have led to a quick diplomatic solution.
Instead, Blair immediately came out with a map that he said proved that the hostages were clearly in Iraqi waters, and couldn't possibly have been in Iranian waters. This closed off the possibility of a diplomatic solution based on "it was a mistake."
The Resolution
There's a great deal of worldwide hostility toward Iran at the present time, not only because of this hostage crisis, but also because of Iran's unwavering plan to develop nuclear technology (and build nuclear weapons). The fact that Russia has now apparently fully joined the coalition -- with America and the EU -- determined not to allow Iran to develop nuclear weapons, the possibility of military action against Iran is significantly high.
And it's worth reminding you again, dear reader, that last summer, when Hizbollah captured two Israeli soldiers as hostages, Israel panicked and launched the Lebanon war within four hours, with no plan and no objectives. With 15 British soldiers now in Iranian hands as hostages, this kind of scenario is a possibility.
Militating against this scenario is the fact that many countries -- including Britain and the U.S. -- want to find a diplomatic solution.
Furthermore, Iran itself is politically split, as any country is during an Awakening era. Kennedy's administration was split between hardliners and moderates, and the same is true in Iran's government today. It's possible that the moderates will force a diplomatic solution on Ahmadinejad.
So there are three possible scenarios:
Despite the apparently escalating diplomatic situation, I consider a diplomatic solution to be more likely than military action.
A Personal Anecdote
I very well remember the night that President Kennedy announced the naval blockade of Cuba, and how panicked every one in my dorm at MIT was. It was pretty clear to all of us that Kennedy was making a major gamble that was threatening thermonuclear war and risking all our lives.
I was pretty panicky myself -- I had been a NY Times subscriber for years, and I was following the situation assiduously. And I still recall the big sign on the bulletin board in the lobby of my dorm: "Tomorrow's weather forecast: Clear and sunny, with temperatures in the high million degrees."
It ended up pretty well for some guys, though. The stories came out afterwards that a number of guys had received phone calls from their girlfriends, saying, "I wanna get laid - I don't want to die a virgin."
So that leaves us with the following question: What are young
Iranian women telling their boyfriends this weekend? Enquiring minds
want to know.
(31-Mar-07)
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During the last year, the traffic to this web site has been growing steadily.
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The adjoining graph shows that traffic to this web site has roughly tripled in the last year. It was almost zero in 2003.
In the current month (March), there have been an average of 768 distinct user sessions per day, requesting an average of 1785 pages per day. This means that the average user requires between 2 and 3 pages per visit.
Incidentally, I have no idea what caused that bump in mid-2005.
I thank all of you who keep coming back. Thanks to the Generational Dynamics methodology, I believe that that this is the only web site in the world that really tells what's going on in the world. There is no other web site in the world with anything like the predictive success of this web site.
I'm still managing to keep up with all e-mail questions sent to me, though it sometimes takes a couple of days for me to get back with a response, depending on volume of e-mail. So if you have a question, by all means send me an e-mail message, or use the "Comment" link at the top of this page.
If you want to have a more open debate, you can do so in the "Objections to Generational Dynamics" thread of the
Fourth Turning forum.
(31-Mar-07)
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Professor Hasan Bolkhari is loonier than Ahmadinejad.
A web site reader has called my attention to this YouTube video of an Iranian scholar, Professor Hasan Bolkhari, explaining how Tom and Jerry cartoons are a Jewish conspiracy. Take a listen -- I couldn't stop laughing:
The lecture appeared on Iranian TV channel 4 on February 19, 2006. It was recorded and translated by MEMRI (The Middle East Media Research Institute). Here is MEMRI's transcript of the lecture:
Some say that this creation by Walt Disney will be remembered forever. The Jewish Walt Disney Company gained international fame with this cartoon. It is still shown throughout the world. This cartoon maintains its status because of the cute antics of the cat and mouse ? especially the mouse.
Some say that the main reason for making this very appealing cartoon was to erase a certain derogatory term that was prevalent in Europe. ...
If you study European history, you will see who was the main power to hoard money and wealth, in the 19th century. In most cases, it is the Jews. Perhaps that was one of the reasons which caused Hitler to begin the anti-Semitic trend, and then the extensive propaganda about the crematoria began... Some of this is true. We do not deny all of it.
Watch Schindler's List. Every Jew was forced to wear a yellow star on his clothing. The Jews were degraded and termed "dirty mice." Tom and Jerry was made in order to change the Europeans' perception of mice. One of terms used was "dirty mice."
I'd like to tell you that... It should be noted that mice are very cunning...and dirty. ...
No ethnic group or people operates in such a clandestine manner as the Jews. ...
Read the history of the Jews in Europe. This ultimately led to Hitler's hatred and resentment. As it turns out, Hitler had behind-the-scene connections with the Protocols [of the Elders of Zion].
Tom and Jerry was made in order to display the exact opposite image. If you happen to watch this cartoon tomorrow, bear in mind the points I have just raised, and watch it from this perspective. The mouse is very clever and smart. Everything he does is so cute. He kicks the poor cat's ass. Yet this cruelty does not make you despise the mouse. He looks so nice, and he is so clever... This is exactly why some say it was meant to erase this image of mice from the minds of European children, and to show that the mouse is not dirty and has these traits.
Unfortunately, we have many such cases in Hollywood shows."
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There are many factual errors with this:
If you'd like to see more of this kind of scintillating entertainment, here's another lecture by Hasan Bolkhari explaining how Jurassic Park is part of the Jewish Crusade against Islam.
As funny as this is, let's not get too smug about it. Remember that
the politicians, journalists and analysts in Washington constantly say things about the Mideast that
are just as moronic and ignorant as the things that Hasan Bolkhari
said.
(29-Mar-07)
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Or, perhaps they did it on purpose, to be "predatory"
An article on the Calculated Risk blog tries to explain why mortgage borrowers committed fraud and why lenders were so lax about enforcing rules:
As soon as borrowers became convinced that paying substantially more for the property than the current seller did just a few months ago is always and everywhere a good sign, you could no longer rely on the "rational agent" borrower to at least limit his fraudulent tendencies to lying on the loan application in order to get away from apartment life. You actually see them agreeing to sign "secret" sales contract clauses that will require them to borrow more than the fair market value of the property, and then give the excess loan proceeds to someone who won’t be helping to repay the debt. Or accepting "down payment assistance" from an interested party, in order to buy a property whose price is inflated by the amount of the "assistance." That this doesn’t seem to strike them as self-defeating tells you a lot about how uninformed or misinformed we are, how far into a true mania we’ve gotten. In the old days, you used to be able to count on RE frauds to display basic self-interest, naked or camouflaged.
Telling the difference between the victims and the victimizers, the predators and the prey, and the fraudulent and the defrauded, is getting a lot harder when you have borrowers not required to make down payments able to lie about their incomes in order to buy a home the seller is overpricing in order to take an illegal kickback. The lender is getting defrauded, but the lender is the one who offered the zero-down stated-income program, delegated the drawing up of the legal documents and the final disbursement of funds to a fee-for-service settlement agent, and didn’t do enough due diligence on the appraisal to see the inflation of the value. Legally, of course, there’s a difference between lender as co-conspirator and lender as mark, utterly failing to exercise reasonable caution, but it’s small comfort when the losses rack up. ...
A recent CNN piece quotes a Clayton analyst as having found a mortgage note signed by "M. Mouse".... How did anyone miss that? ...
What I want to do instead is to make some general observations about why so much fraud is missed by lenders. Obviously, there are lenders who are colluding with borrowers, or who are defrauding investors or borrowers or some other party; that’s either "fraud for housing" or "fraud for profit" or the new hybrid of the two. To me, that’s the least interesting problem (although it’s an important one). I want to talk about the extraordinarily widespread "insufficient caution" problem in this industry: the lenders who are just too easy to defraud. It seems to me that this problem gets to the heart of a lot of the issues we keep talking about here: toxic mortgage products, loose standards, out of control home price bubbles, and the endless chain of "disintermediation," outsourcing, temping, dumbing down, fragmenting, and otherwise morphing of the business of home mortgage lending into a big fraud magnet. It often seems as if the industry just stopped believing that it could ever really be at risk.
On the one hand, everyone does know that you can’t run a mortgage lending business with the same level of anti-fraud measures they use at Domino’s to keep from wasting pizzas on prank calls. On the other hand, we are starting to see—and I predict we will start to see a cascade of—stories of lenders with such lax internal controls that if they did remember the risks, you have to conclude they just tried to repress those memories."
What I'd like you to get out of reading the above description is not the details about how fraud occurred; what I want you to do is get a "feeling" of what's been happening.
Remember that Generational Dynamics is not concerned about the behaviors and attitudes of an individual or small group of people; it's concerned with the behaviors and attitudes of large masses of people, entire generations of people.
So you should read the above description not for the details of the individual actors -- the buyers, the builders, the lenders, etc. -- and their actions, but the attitude that they all share -- the attitude that nothing really matters. There's little or no difference between victims and victimizers, between predators and prey.
Really, everyone has the same attitude, the sense that you'll make money and do all right no matter what.
And this is the generational attitude that comes about at the height of the bubble mania, just before a crash, as I discussed in my article based on research by Harvard economist Robert J. Barro.
Now, let's look back in history at the funniest bubble of the all, the Tulipomania bubble.
Pundits and journalists today look back on the Tulipomania bubble and laugh. Ha, ha! How could anyone be so utterly stupid to pay such inflated prices for a simple tulip? Or even worse, for a "tulip future," that gave you the right to own a particular tulip that would be grown in the following Spring? How could anyone be so dumb as to think that a tulip could ever be worth as much as a small house? Ha, ha! People were sure incredibly dumb in the 1630s, weren't they? Ha, ha! They must all have been on some sort of drugs or alcohol to do something so incredibly stupid. And when the tulip market crashed on February 3, 1637 -- well, how could they be such idiots not to have seen that coming? Ha, ha!
Well, let's take a look at what happened with this tulip mania. Here's an excerpt from the description given in Edward Chancellor's 1999 book, Devil Take the Hindmost, a history of financial speculation:
The nature of the tulip market changed as the traffic increased. Private negotiations between individuals gave way to informal meetings in the rooms of inns, called Colleges, where trades and speculators could trade in convivial surroundings. ...
There were two methods of dealing: direct negotiation between two persons or general auction. The former method, called "with the plates," ... involved both buyer and seller inscribing an agreed price for a bulb on wooden plates provided by the College. Auctions were referred to as "in the naught" since the seller set a starting price by writing a figure in the middle of a slate circled with a zero. A commission of up to three guilders for "wine money" was paid by the buyer to the College, which was spent on tobacco, alcohol, light, and heating. Pleasure was mixed with profit....
No actual delivery of tulips took place during the height of the boom in late 1636 and early 1637 as the bulbs remained snug in the ground. A market in tulip futures appeared, known as the windhandel (the wind trade): sellers promised to deliver a bulb of a certain type and weight the following spring, buyers took the right to delivery -- in the meantime, cash settlement could be made for any difference in market price. Most transactions were expedited with personal credit notes which also fell due in the spring when the bulbs would be dug up and delivered. Gaergoedt boasts of having made 60,000 guilders from his tulip speculations but admits that he has only received "other people's writing." By the later stages of the mania, the fusion of the windhandel with paper credit created a perfect symmetry of insubstantiality: most transactions were for tulip bulbs that could never be delivered because they didn't exist and were paid for with credit notes that could never be honoured because the money wasn't there." (pp. 16-18)
Now, I want you to read this second description in the same way that you read the first one -- not for the details, but for the "feeling" for the attitudes of the people involved.
The point is, we're no different today than in the Tulipomania days. We've been doing exactly the same thing. We have the same kind of credit debauchery, the same kind of craziness, the same kind of "state of denial." Only the details are different; the attitudes and behaviors are identical.
We also a have a "perfect symmetry of insubstantiality" today: Americans' credit card debt keeps growing, even though it can't grow forever; America's international debt keeps growing, even though it can't grow forever; China lends more and more to the U.S., though it can't keep lending more forever; and China's 20-year-old bubble economy depends on selling textile and electronic goods to Americans, who purchase them with the money that China lends to America.
Once the crash occurred, the "feeling" of credit debauchery ended, of course. In fact, the entire Western world learned its lesson from the Tulipomania crash. But, as the decades passed, the people who learned those lessons grew old and died, and the younger generations eventually developed the same behaviors and attitudes.
The epicenter of the Tulipomania crash was in Holland in 1637. The epicenter of the South Sea Bubble crash was in England, in 1721. The epicenter of the French Monarchy (bubble) bankruptcy was in France, in 1789. The epicenter of the Hamburg Crisis of 1857 (Panic of 1857) was in Germany. And the epicenter of the Wall Street crash of 1929 was, of course, in America.
Why does the epicenter keep changing? Well, I like to say that young generations forget the wisdom that they're parents tried to teach them, but it's just possible that the epicenter of a crash retains a tiny bit more of that wisdom than the others.
A few years ago, when I first began saying that we were headed for a new 1930s style Great Depression, people used to tell me, "It can't happen. In the 1930s, the Roosevelt administration put in new agencies and regulations to prevent another depression from ever occurring."
But of course the agencies and regulations that were created in the 1930s to prevent another depression have already failed.
Take the Securities and Exchange Commission. When I was high school in the 50s, my teachers all told me how the SEC was going to prevent a future depression. The 1930s depression was caused by the huge stock market bubble of the 1920s, where millions of investors drove up the prices of stocks by borrowing money from each other, a situation that led to a huge stock market correction in the 1930s. The SEC would prevent that from ever happening again by regulating margin rates, which would reduce buying stocks on credit, and prevent another huge stock market bubble. My 1950s high school teachers knew that because they lived through the 1930s, and understood that piece of wisdom.
Well, today all the people who remember that wisdom from personal experience are gone. And the SEC failed to prevent the huge 1990s stock market bubble. The SEC has completely failed to perform the principal function that it was originally set up for.
Still, those agencies and regulations still exist, and even though they've failed to do their jobs, they've at least slowed things down. We do have some sense of things going wrong, even though we're still in a state of mania.
But that's not true in China. I don't get the feeling from anything I've read that the Chinese have any idea at all what's going on. They seem to have no real concept of a bubble, and no real fear of a crash.
So I think that the epicenter of the next crash will be in China. The entire world will be economically devastated, of course, but my expectation is that the devastation will be greatest in China.
Recall that on February 26, I posted an article describing that the Shanghai stock market bubble appeared close to bursting. I described how people were selling their houses, borrowing money from friends and relatives, to do day-trading in the stock market. There seemed to be no sanity at all in the mania.
Well, it was very next day that a brief panic caused the Shanghai stock market to fall 8.8%, causing a small panic on Wall Street as well.
What caused the panic in Shanghai, and why did it spread around the world -- to Europe and then to America? No one knows.
Let me repeat a quote from Chancellor's book: "On 3 February 1637, the tulip market suddenly crashed. There was no clear reason for the panic except that spring was approaching when delivery fell due and the game would be up."
Well, maybe the Shanghai stock market mini-panic occurred on February 27 because spring is coming, and people suddenly feared that the game would be up.
Incidentally, guess what? The Shanghai stock market has completely recovered from the February 27 collapse, and is once again at NEW HIGHS. It was the seventh straight session when the market ended up.
So if it was a bubble on February 26, then isn't it an even bigger bubble on March 28?
As I've said so many times, it's not possible to predict when a panic
will occur, but from the point of view of Generational Dynamics,
we're now overdue for a generational panic and crisis. It could
happen next week, next month or next year, but it's coming with
certainty. It will destabilize densely packed populations in China
and around the world, and will lead to the Clash of Civilizations
world war. As usual, Generational Dynamics tells us our final
destination, but not how we'll get there.
(28-Mar-07)
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Sri Lanka may soon join Darfur as another generational crisis war.
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In a new escalation of the Sri Lanka civil war, Tamil Tiger rebels flying two aircraft bombed the government's main air force base near the airport in Colombo, Sri Lanka's capital.
According to a story on TamilNet, the Tamil Tigers' web site, the purpose of the bombing was to prevent the government Sri Lankan air force from bombing Tamil civilians.
Recently, thousands of Tamil men, women and children have been forced to flee shelling and bombing by government forces.
As I've been been describing for the last year, fighting has been increasing, following the collapse of a 2002 cease fire.
From the point of view of Generational Dynamics, the Sri Lanka war is following a familiar pattern for a civil war in a country in a generational Crisis era.
This war is fought between two ancient races: The Sinhalese (Buddhist) and the Tamils (Hindu). WW II was a crisis war for India and for Ceylon, the former name of Sri Lanka. There was relative peace on the island until 1976, when the Tamils began demanding a separate Tamil state, and formed a separatist group called the Liberation Tigers of Tamil Eelam (LTTE), or just "Tamil Tigers."
A non-crisis civil war began in 1983, and the low-level violence continued until a peace treaty was signed in 2002. In the last few months, the peace treaty has been unraveling, and in the last year it appears to be approaching a full scale genocidal crisis civil war.
As the violence continues to increase, at some point it will reach a tipping point. This point is known as "the regeneracy" in generational theory, because this is the point where the unity and identity of each group completely "regenerates." The people in each group put aside all internal political disagreements aside and unify to utilize any means necessary to defeat the enemy. Once the regeneracy is reached, the war becomes a full-scale genocidal crisis war. The fighting will continue to escalate until an explosive climax occurs, and a resolution is reached.
The only crisis war going on in the world today is the war in Darfur. The Darfur war began in the 1970s as simple clashes between farmers and camel herders competing for land, much as the farmers and cowboys did in the American prairies in the 1800s. But the violence in Darfur has grown intermittently since the 1970s. The regeneracy occurred in 2002-3, and widespread killing and raping began in earnest.
The Darfur problem first began to get worldwide attention in 2004, shortly after the 10-year commemoration of the 1994 Rwanda genocide. At that time there were big get-togethers of high-level officials from the U.N. and from various countries, making official pronouncements that the violence must stop. At the commemoration, U.N. Secretary General Kofi Annan promised "Never again." I wrote at the time that the U.N. is completely irrelevant to the Darfur genocide, and that it would not be stopped until it's run its course.
My prediction that the U.N. would be able to do nothing to stop the Darfur genocide has been shown to be completely true, one of the many predictions on this web site that have been shown to be true.
Now we see the Sri Lankan war approaching the same situation.
| Conflict risk level for next 6-12 months as of: 9-Feb-2006 | ||||
|---|---|---|---|---|
| W. Europe | 1 | Arab Israeli | 3 | |
| Russia Caucasus | 2 | Kashmir | 2 | |
| China | 2 | North Korea | 2 | |
| Financial | 3 | Bird flu | 3 | |
| ||||
I haven't included the Sri Lanka situation on my conflict risk
graphic because I'm assuming that a genocidal Sri Lankan civil war
will not automatically trigger a world war, the way a Chinese civil
war would, for example. Nonetheless, a full-scale war in Sri Lanka
could spread to India, and from there to Kashmir, for example, or
into northeast India, where Maoist rebels have increased fighting.
Thus, it is possible that in some scenarios a Sri Lanka civil war
could trigger the "clash of civilizations" world war which
Generational Dynamics predicts will be coming in the near future.
(26-Mar-07)
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Using the feminine touch to keep a bunch of quarrelsome men in line, Germany's Chancellor, Angela Merkel, worked to prevent another disastrous blowup like the acrimonious European Union summit meeting in June 2005.
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The 2005 meeting occurred shortly after the electifying French referendum that rejected the proposed EU constitution.
At that summit meeting, British Prime Minister Tony Blair, Luxembourg Prime Minister Jean-Claude Juncker and French President Jacques Chirac exchanged vitriolic accusations over how the EU budget, especially the agricultural subsidies, were to be divided among the EU members. Six months later, Tony Blair caved, and only that way could an interim EU budget agreement be reached.
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At that time, Jean-Claude Juncker held the rotating Presidency of the European Union; today, German Chancellor Angela Merkel holds the seat. And she's been working overtime to avoiding a repeat of the 2005
Sunday was originally supposed to be a grand celebration -- a 50th birthday celebration, commemorating the March 25, 1957, signing of the "Treaty of Rome" that created the precursor to the "United States of Europe."
There would be a new "Treaty of Berlin." The heads of all 27 EU member states would sign the new Treaty of Berlin, and that would seal the deal for a new, grand and glorious European Union.
Unfortunately, the development of the text of the Treaty of Berlin was as contentious as agreement about the budget has been.
So Merkel developed the text in secret, showing it only to those who had to see it, not revealing it until Sunday, when everyone would be signing it.
But then Czech president Václav Klaus let it be known that he might refuse to sign the treaty, because it was prepared in secret.
So, Merkel solved that problem by deciding that there would be only three signatures: Merkel, as EU president, European Commission president José Manuel Barroso, and European Parliament president Hans-Gert Pottering. It would now just be called the "Berlin Declaration."
The text of the Berlin Declaration shows it to be as bland as water. It just says, essentially, "the EU is great, thanks to everyone's help." I'll comment on the text again below.
Czech president Václav Klaus has been unhappy about references to the environment and climate change, since any treaty reducing emissions would fall very heavily on the Czech republic, where factory emissions are high.
Poland wanted the declaration to mention the Christian roots of Europe, and now Pope Benedict is accusing the EU of apostasy for refusing to mention Christianity in the declaration.
Britain wants mention of the euro currency to be played down, since Britain is still using its own local currency (the pound) in place of the euro.
And the biggest problem of all is being played down: There's still no EU constitution, and no real hope in sight. Luxembourg Prime Minister Jean-Claude Juncker wants a constitution right away, but the compromise document simply calls for "renewed common basis before the European Parliament elections in 2009."
So it was a nice get-together. The leaders probably got slightly inebriated, but not so much that they would raise any difficult issues with one another. They'll all go home, with nothing accomplished, and nothing in sight.
To see how they got to this point, let's go back to the 1950s. Europe had been devastated by two world wars. Everybody was fearful that there could be another world war at any time. Finally, it was agreed by the war survivors that Europe had to form a union like the United States to prevent another war. That was the powerful motivation behind the 1957 Treaty of Rome.
That motivation is reflected in text of the final declaration:
The European Union will continue to promote democracy, stability and prosperity beyond its borders.
With European unification, a dream of earlier generations has become a reality. Our history reminds us that we must protect this for the good of future generations. For that reason we must always renew the political shape of Europe in keeping with the times. That is why today, 50 years after the signing of the Treaties of Rome, we are united in our aim of placing the European Union on a renewed common basis before the European Parliament elections in 2009.
In the end, there is no part of this declaration more important than this sentence: "European unification shows that we have learnt the painful lessons of a history marked by bloody conflict."
The fear of a major new European war is what has motivated the entire European project.
But of course, this fear is generational. It's the older generations that fear a new European war. The younger generations take for granted that there WON'T be a new European war. For the younger generations, all that matters is level of income, quality of life, the most stylish cell phone, the coolest car, and so forth.
At the end of 2005, when the European leaders had finally recovered from the shock of the French rejection of the EU constitution, there was a new consensus: Just wait a couple of years and try again, and public opinion will move in the direction of being more favorable.
But they've got it backwards. As the older generations, with some memory of the world wars, disappear, and younger generations replace them, the primary visceral motivation for an EU -- fear of a new European war -- is disappearing as well.
I showed this in my analysis of the exit polls from the French referendum on the EU constitution, and the results of France's 1992 referendum on the Maastricht treaty: It was people born before 1945 who primarily voted in favor, and people born after 1945 who primarily voted against.
As usual, supposedly intelligent journalists and analysts are completely clueless about all this. All they could talk about were their usual obsessions about class and income. They would ask a really stupid question, like "Why did we lose the middle managers and the moderately highly paid?" The answer to that question was that in 1992, the middle managers and moderately highly paid were born BEFORE 1945, and in 2005 the middle managers and moderately high paid were born AFTER 1945. But no article that I've seen has even discussed this point. It's simply too abstract a concept for the journalists and analysts to even grasp.
(Incidentally, this is the kind of concept that's central to Generational Dynamics, and one that I raise over and over. For example, last week I wrote about the Chinese use a carrot and stick approach with Taiwan, alternating threats of war with offers of economic incentives. They believe that the Taiwanese people will eventually become convinced that they should reunite with China. But they have it backwards: as older generations die off, the Taiwanese people are less interested in reuniting with China.
The same is true with financial trends. The 1990s stock market bubble only occurred with the generation that personally remembered the 1929 stock market crash died off; the younger generations had no fear of abusing credit, and now we're close to a new stock market crash. But analysts never seem able to connect those dots.)
But if journalists and analysts aren't intelligent enough to see the generational changes, the people that they interview sometimes are.
One news report quotes a 50-year old man as saying yesterday, "My parents had experienced two wars before (the EU was founded). My father lost his brother. I have the opportunity to live in peace here."
During the run-up to the 2005 French referendum, young people were quoted as worrying that low-paid East European workers would come to France and take all the jobs; the symbol adopted by opponents of the constitution was the low-paid Polish plumber who steals a job away from a well-paid Frenchman.
But there was a different kind of opinion expressed by an elderly French voter to a BBC reporter: "My grandfather fought in World War I. My father fought in World Wars I and II. I fought in World War II. And now, for 60 years, my children and grandchildren have lived in peace. That's a good enough reason to me to vote 'yes' on the Constitution."
This is all Generational Dynamics in action. When a genocidal crisis war occurs, the people who survive are so traumatized that they spend the rest of their lives do everything in the power to keep it from happening to their children and grandchildren. Their children and grandchildren, however, take it for granted that there will never be a new war, and so they're shocked and surprised when the new war begins in earnest.
| Conflict risk level for next 6-12 months as of: 9-Feb-2006 | ||||
|---|---|---|---|---|
| W. Europe | 1 | Arab Israeli | 3 | |
| Russia Caucasus | 2 | Kashmir | 2 | |
| China | 2 | North Korea | 2 | |
| Financial | 3 | Bird flu | 3 | |
| ||||
When I discuss these issues with people, the thing that seems to surprise them the most is that there's going to be a major new European war. This wouldn't be a surprise at all to people who lived through World War II, because they've seen it all before; it's a surprise to the younger generations because they believe that their parents are just being alarmist even talking about the possibility of a new European war.
It also shouldn't be a surprise to someone who understands that Europe has had many major crisis wars, at least since 1066, and actually back through the days of the Roman Empire. Each one of these wars was unexpected before it happened -- because the young generations rejected their parents' warnings as being alarmist.
The most recent West European crisis wars are the Thirty Years War (ending 1648), War of the Spanish Succession (1714), French Revolution (1799), Franco-Prussian war / Paris Commune (1871), World War II (1945).
The most recent East European / Mideast crisis wars are the Battle of Kosovo (ending 1389), Fall of Constantinople (1453), Ottoman conquest of Syria and Egypt (1520), War with Habsburgs (1606), War with Holy League (1699), War with Russia (1774), Crimean War (1856), World War I (1922).
There are similar lists for other countries and every region of the world. There is absolutely no reason to believe that the generational changes that produced these wars have suddenly changed. In fact, what we're now seeing is that the above two timelines (that I often refer to, for simplicity but somewhat misleadingly, as the "World War I timeline" and "World War II timeline") are now going to merge into a major Clash of Civilizations world war.
Within Europe, there is still the question of how France, England and Germany will line up with one another. Over the centuries, they've lined up as allies or enemies in several different ways. I've speculated that France will line up against England because of my own personal experiences in the 1970s, when I was doing a lot of business travel to Europe; it was perfectly clear to me that the Germans liked Americans and the French hated Americans. The vitriolic exchange, described above, involving Chirac, Juncker and Blair, represents very real, deep-seated conflicts between the French world view and what the French call the "Anglo-Saxon" world view.
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What this shows is how powerful the fault line still remains from the 1066 war when the Norman French conquered the Saxons in England. One interesting speculation is that the Robin Hood legend has survived for centuries because of this fault line. In fact, the BBC last fall launched a brand new Robin Hood TV Series, and it's just now starting on BBC-America. What is rarely mentioned is that Robin Hood was a "good" Saxon, stealing from the rich, "evil" French invaders to give to the poor. I'm going to take a wild guess here and say that the Robin Hood legend isn't nearly as popular in France as it is in England. (Just the opposite is presumably the case for the Joan of Arc (Jeanne d'Arc) story.)
From the point of view of Generational Dynamics, there's no doubt at all that there will be a new European war. We can't predict what scenario will lead to that war, or which side each of the European countries will be on -- those are matters of speculation; but the final destination -- a major new European war -- can be predicted with certainty.
But there's more to be said. European wars have always had more than one component. On the one hand, there was the Christian component -- Protestants vs Catholics. On the other hand, there was the Christian versus non-Christian component -- Christians versus Jews and Muslims. Both of these components will appear in the coming new European war.
The successful July 7, 2005, London subway bombing has been a powerful tool for the Islamist radicals in recruiting young Muslims in England to form terror cells for further terrorist acts.
As I wrote in a lengthy article in November, from the point of view of Generational Dynamics, many of Britain's young Muslims have set up a "Hero/Prophet" relationship with the radical clerics in Pakistan. This kind of relationship is the visceral basis by means of which new genocidal crisis wars begin. There's an emotional connection between the elder Prophet generation (the idealistic generation born after the last crisis war) and the impatient college age Hero generation (the soldiers who will be fighting the new crisis war). Last month, reporting by Peter Bergen on CNN made it clear that the young British Muslims are particularly connected to the resurging al-Qaeda leadership on the Afghan-Pakistan border.
The radicalizing of young Muslims is occurring throughout Europe. A reader recently referred me to a Washington Times article by Paul Belien, editor of the Brussels Journal, and a conservative-libertarian political supporter:
About three years ago, young men dressed in black moved into the neighborhoods. They had been trained in Saudi Arabia and Jordan and adhere to Salafism, a radical version of Islam. They set up youth organizations, which gradually took over the local mosques. "The Salafists know how to debate and they know the Qur'an by heart, while the elderly running the mosques do not," she said They also have money. "One of them told me that he gets Saudi funds." Because they are eloquent, the radicals soon became the official spokesmen of the Muslim community, also in dealing with the city authorities. Ms. Uijt den Bogaard witnessed how the latter gave in to Salafist demands, such as the demand for separate swimming hours for Muslim women in the municipal pools. ...
Sadly, what is happening in Antwerp is not unique. The Salafists employ the same strategy in other European cities. They boasted to Ms. Uijt den Bogaard about their international network and their successes in neighboring countries. While the Americans fight to secure Iraq, Western Europe is becoming a hotbed of Salafism."
Now, this is all anecdotal evidence from a political supporter, but it represents what is evidently a growing divide between Europeans and young Muslims living in Europe.
Needless to say, none of this was discussed in the Berlin Declaration that was adopted on Sunday.
According to the Declaration of Berlin, adopted on Sunday, "European unification shows that we have learnt the painful lessons of a history marked by bloody conflict. Today we live together as was never possible before."
Who is the "we" in the phrase "we have learnt"? It's not the younger generations, for whom this exercise is meaningless. They're more worried about what to wear on their next date.
This is Generational Dynamics in action. The people who say "we have
learnt the painful lessons of a history marked by bloody conflict"
are the old dinosaurs that no one cares about anymore. The younger
generations are the ones making all the decisions now, and they
haven't learned anything at all. And Angela Merkel's feminine touch
won't change that at all.
(25-Mar-07)
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Anti-Americanism has been declining in Iran for ten years, according to Sadegh Zibakalam, a professor at the University of Tehran, in an interview broadcast by CNN on Saturday.
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To combat this decline in anti-Americanism, Iran's government has been resorting to televised cartoons that "poke fun at the U.S." Other cartoons are anti-Israeli and very anti-Semitic.
According to Professor Zibakalam:
So maybe the government has realized that the anti-American feeling is on the decline, and they've started to make these cartoons to sort of sustain anti-American feeling."
Here's an example of one of the cartoons:
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The CNN announcer describes what's happening as follows:
The cartoons appeal to many here, which is why some moderates are concerned that the average Iranian will confuse American policy and the American people. But for the government of Mahmoud Ahmadinejad, it is just a new campaign against an old enemy."
What's going on here is completely generational, as I described in my recent lengthy analysis of Iran's strategy.
In brief: The Iranians' last crisis war was the Islamic revolution of 1979 followed by the Iran/Iraq war. The generation of people who survived that war blame Iran's difficulties on the U.S. and on America's previous alliance with the Shah of Iran.
However, as the postwar generation comes of age, Iran is in a generational Awakening era, and the Shah of Iran is just a random old fossil that the leaders are using to impose Islamic law on citizens. Mahmoud Ahmadinejad is particularly despised for this, especially by women, who always become infuriated with leaders during generational Awakening eras. The women of Tehran are considered among the most stylish in the world, and Ahmadinejad's rules, restricting the wearing of Western apparel and limiting public contact with males, are not going down very well.
The Iranian leadership doesn't understand this (just as few leaders anywhere understand generational issues). They think that this is a problem in education or something, and that by showing a few cartoons about the "evil" George Bush, they'll somehow convince the women to go back to their burkas again -- and anyone who knows anything about women also knows that this will never happen until pigs fly.
Iran is much in the news today for several different reasons:
(24-Mar-07)
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In press conference, he also scolds Taiwan over Chen's "four wants."
We can imagine the shock and surprise if President Bush ever described America as "unbalanced," or if Tony Blair described Britain as "unsteady."
But at Chinese premier Wen Jiabao's press conference on Saturday, he was asked about the economy, and he used those words and more:
Wen left out the word "unstable," but in fact that word is applicable as well. What I wrote in January, 2005, is that China is becoming increasingly unstable and approaching a civil war, and Wen's speech serves to illustrate that.
With regard to Wen's second point, "unbalanced development," the divide between urban and rural areas has continued to worsen. Rural incomes average about $450 per month, while urban incomes are three times as high, around $1350 per month.
To make matters worse, Chinese Communist Party (CCP) officials have freely taken property from citizens in rural areas for whatever development project they desire. And so, besides the urban/rural divide, there's an enormous divide in rural areas between the élite classes and the peasant classes. (For those familiar with Communism and Mao Zedong, this is an ENORMOUS irony.)
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The results have been almost hard to imagine for Americans. There are tens of thousands of regional rebellions each year, according to official Chinese ministry figures. If only ONE such rebellion ever occurred in America, it would be major international news. The adjoining graphic illustrates the recent problems in just one county. These problems are repeated across the vast country.
Unable to support their families, over 100 million people have moved, in a huge mass migration from rural to urban areas, to get jobs. (For comparison, the entire population of the US is about 300 million.)
From there, the next problem is Wen's first point: "Unsteady development means overheated investment as well as excessive credit supply and liquidity and surplus in foreign trade and international payments."
I first wrote a brief note about this in 2004, when China's economy grew much faster than planners had wanted. China's entire economy has been a bubble economy for several years. Wen is well aware that this can't continue for long, and his third point indicates where he sees a danger of dislocation: "Uncoordinated development means that there is lack of proper balance between the primary, secondary and tertiary sectors and between investment and consumption. Economic growth is mainly driven by investment and export." This "uncoordinated" development means that there are many inefficiencies in the economy.
The solution may seem simple -- just correct the inefficiences. But trying to do that means that millions of people, whose jobs depend on those inefficiences, may lose their jobs. And any large dislocation, whether caused by attempts to correct inefficiencies or just a good old fashioned recession, brings into play those 100 million plus migrant workers.
China has a long history of massive, nation-wide rebellions. Right now, China's well-trained riot police are keeping the tens of thousands of annual regional rebellions under control, but a dislocation of a huge mass of migrant workers would cause China to become completely unstable and head for a new mass rebellion.
What would China's leaders do in that event? That brings the military into focus.
Let's take a look at China's latest National Defense document, issued in December 2006.
First, you have the People's Liberation Army (PLA):
By the end of 2005, China had completed reducing the PLA by 200,000 troops, and the PLA currently has 2.3 million troops. ...
The Army is speeding up the upgrading and informationization of its active main battle equipment to build a new type of ground combat force which is lean, combined, agile and multi-functional. Priority is given to building Army aviation, light mechanized and information countermeasures units. The share of the armored component in the Army combined combat forces has been further raised. The artillery and air defense component has fielded new types of cannons, field antiaircraft missiles, reconnaissance early warning radars, fire-control systems, and intelligence and command systems, and increased the proportion of ground-to-air missiles to antiaircraft guns. The engineering component has grown in step with the main combat arms, and improved its capabilities of accompanying support and precision support. The anti-chemical component has established a preliminary nuclear, biological and chemical (NBC) protection system tailored to joint operations, and greatly increased its capabilities of rapid NBC protection, NBC emergency rescue and operations against NBC terrorism. ...
The Navy is working to build itself into a modern maritime force of operation consisting of combined arms with both nuclear and conventional means of operations. ... Efforts are being made to improve maritime battlefield capabilities, with emphasis on the construction of relevant facilities for new equipment and the development of combat support capabilities. The Navy is endeavoring to build mobile maritime troops capable of conducting operations under conditions of informationization, and strengthen its overall capabilities of operations in coastal waters, joint operations and integrated maritime support. ... The Navy is enhancing research into the theory of naval operations and exploring the strategy and tactics of maritime people's war under modern conditions.
The Air Force is working to build an informationized air fighting force with both offensive and defensive capabilities. It is reducing the number of combat aircraft, giving priority to the development of new fighters as well as air and missile defense weapons. It is working to enhance command and control systems. It stresses mission-oriented and confrontational training, increasing combined tactical training of different arms and aircraft types, and conducts training in flying refitted new aircraft and using new weaponry and equipment in an active and stable way.
So the PLA, now a slim 2.5 million people, is for "external" wars, fighting against foreign enemies.
But the same document describes another armed force, People's Armed Police Force (PAPF), consisting of 660,000 people:
In peacetime, the PAPF is tasked to perform guard duties, handle emergencies, combat terrorism, and participate in and support national economic development. In wartime, it assists the PLA in defensive operations.
Every day, more than 260,000 PAPF servicemen are on guard duty. Through the combined use of manpower, facilities and technologies, the PAPF has effectively enhanced the efficiency of guard duties and security in recent years. The PAPF annually handles an average of over 100 cases of attempted attacks against guarded targets and escape attempts by detained suspects and imprisoned criminals, organizes thousands of important temporary duties, and ensures the security of important international and national conferences and large-scale events, in cooperation with the government departments concerned. Adhering to the guidelines and principles for handling emergencies, and using proper methods and tactics, the PAPF effectively safeguards the fundamental interests of the people, social stability and the dignity of the law. The PAPF anti-terrorism units closely follow the state's anti-terrorism guidelines and principles, and enhance their combat-readiness training. They have been involved in the successful handling of cases of bombing attempts and kidnapping incidents. The various units of the PAPF take an active part in efforts to keep local order, and assist the public security departments in catching and arresting criminal suspects and cracking down on organized criminal gangs.
For comparison purposes, I estimate that the FBI has 1 person for every 10,000 population, while the PAPF has 1 person for every 2400 Chinese population, or over four times as many people per capita.
At this size, the PAPF is large enough to put down a regional rebellion, but if the rebellion expands into tens or hundreds of millions of people, as happened with the Taiping rebellion in the 1850s-60s, or the civil war in the 1930s-40s, then the PAPF would not be able to handle it.
At that point, the CCP (government) would be facing its own demise, and would do what it had to do to reunite the country -- start military action against Taiwan, Japan or even America. This is not as farfetched as it might seem, as this kind of thing has happened numerous times in history. Some nutjobs even accuse President Bush for having started the Iraq war for the same reason.
That's one scenario for how a war might start, but it's not the only one.
What we're seeing today is a game of international brinksmanship between Taiwan and China.
Taiwan President Chen Shui-bian has been taunting China and China has been threatening Chen, ever since Chen was elected in 2000.
Chen was the first president who openly favored independence for Taiwan. This prompted China to say that Chen, along with his vice president Annette Lu, were the "Scum of the Nation." Relations between Chen and China became even worse when Chen was reelected in 2004.
In February 2005, Chen made a conciliatory speech in which he reaffirmed the "five noes" that he had originally laid out in his 2000 inaugural address:
Shortly after Chen made that speech, China infuriated Taiwan by passing the Anti-Secession Law on March 14, 2005. The CCP intended the law to "convince" the Taiwanese people that reunification is in their best interest. Instead, it provoked massive anti-Chinese riots in Taiwan.
Now, at the two-year anniversary of the Anti-Secession law, recent polls of the Taiwanese people have shown that the law did not accomplish its purpose. The overwhelming majority of Taiwanese people believe that the law was hostile, that China should not be interfering in Taiwanese affairs, and that it's up to the Taiwanese people, not the Chinese, whether Taiwan reunifies with China or becomes independent.
Then, earlier this month, China's premier Wen announced a 17.8% increase in its military budget for 2007. On the second anniversary of the Anti-Secession law, this was taken as specifically targeting Taiwan militarily.
However, it's unusual for any country to accede to threats when it's entering a generational Crisis period. This is a time of high nationalism and high anxiety, as well as vitriolic political turmoil (as can be seen in the U.S. these days). Chen had been strongly criticized by his supporters when he reaffirmed the "five noes" in 2005, and after the CCP's recent announcement of a very large military budget increase, Chen gave a new speech: the "four wants and one without." (The Chinese people have interesting ways of saying things, don't they?)
Chen's "four wants" are as follows:
Chen's "one without" refers to a lack of left and right wing political lines.
There's an interesting language-related point in this. According to an article in Taiwan's China Post, the translation "four wants" is not entirely accurate. According to the article, Chen used the word "yao," which means "want" when used as a verb; but Chen used it as a noun, and then it means "imperative," in the sense of "a command or an unavoidable obligation or requirement or simply a necessity." If this is the case, then Chen's speech is much sharper than press reports have indicated.
As I mentioned above, any country entering a generational Crisis era tends to act in a certain way. This is the time when the generation of people who survived the last crisis war (here, the civil war between Mao Zedong and Chiang Kai-shek) have mostly disappeared, leaving behind the arrogant post-war generation who have no fears and think they know everything. When this generation takes charge, the country enters a generational Crisis era. The population experiences what's known as "cognitive dissonance," because their certain knowledge is challenged by reality. In Taiwan's case, the building assumption that Taiwan can be independent comes into conflict with the reality of thousands of Chinese missiles pointing at them.
I found a remarkable example of this in a Taipai Times article.
In a statement supporting Chen's vice president, Annette Lu (whom China has dubbed the "scum of the nation,") in her candidacy for president, former presidential adviser Koo Kwang-ming made the following comments in reaction to China's military threat:
[In the worst-case scenario], I would welcome [a war]. ...
Taiwan's biggest crisis is the lack of a national consensus on the nation's future despite the military threat from China. But if China were to launch a military attack against Taiwan, a consensus would be formed within a week."
Well, he's certainly right about that consensus, and it probably wouldn't even take a week. But he doesn't seem to grasp the consequences of such a war for Taiwan itself, or perhaps doesn't care.
In this context, Chen's "four wants" speech seems quite similar. His speech is clearly a major provocation to China, and he seems not to fear any possible consequence.
In fact, Chen seems determined to draft a new constitution before he leaves office in 2008, although there's no guarantee that it will be adopted. Chen may be leaning towards a "second republic" constitution, drafted by a Taiwan think tank. It clearly spells out the path to independence.
So if Taiwan's leaders are in a state of denial and anxiety, the same is true of China's leaders, who often seem close to hysteria. I've previously quoted Chinese officials screaming and threatening war, saying that hundreds of American cities will be destroyed by Chinese missiles, and that "one inch" of Chinese territory is worth more than the lives of Chinese people.
This brings us to Wen Jiabao's remarks about Taiwan in the same press conference that we began with:
This is a trend no one can reverse, as described in a classical Chinese poem: A thousand sails pass by the wrecked ship; ten thousand saplings shoot up beyond the withered tree."
This last paragraph is a cute allegory. I think that perhaps it might have a generational meaning -- that new generations make old ideas obsolete.
Unfortunately, Wen's state of denial is so complete that he has it backwards. He apparently believes that by using his carrot and stick approach, alternately threatening war and offering economic incentives, then the people of Taiwan will increasing want to be unified with China. (Is there anything that Tony Blair could possibly say that would make Americans want to become part of Britain again?)
I'm aware of absolutely no evidence that supports Wen's hopes and dreams, and plenty of evidence that contradicts it. In Wen's allegory, the "withered tree" are the generations that fled China for Taiwan in 1949, and still yearn to return to their homeland. The young "ten thousand saplings" are the new generations that have no personal memory of China, consider it to be a foreign country, and were so horrified by the 1989 Tiananmen Square massacre that they want nothing to do with China. The number of these "young saplings" grows every day.
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This is supported by the adjoining graphic which I've discussed several times. It shows that the number of people calling themselves "Taiwanese," rather than "Chinese," has been growing steadily, as the younger generations continue to take over, and the older war generation dies off. I've seen polls (somewhere?) that show that the number of people calling themselves "Taiwanese, not Chinese" has risen to almost 70%.
Another change is in the use of language. There is a dialect known as Minnan, which is considered to be the indigenous Taiwanese language by the Taiwanese themselves. The use of Minnan has been suppressed by harsh government actions for the last century, first by the Japanese colonists and then by the Chinese nationalists, but now the use of Minnan has been soaring, displacing Mandarin which, of course, is favored by China's officials.
What all this means is that time is NOT on China's side. The carrot and stick approach is fine, but it only means that, from China's point of view, the situation is Taiwan is getting worse every day, as Taiwan's population feels less and less connected to China.
Now, there are a series of sharp political deadlines coming up. These are as follows:
Now, the Summer Olympiad is an incredibly big deal to China. It's taken on the emotional stature of a "sweet sixteen" coming out party for a girl. China has been planning for that moment for years, and wants to use the Olympiad to demonstrate to the world that China is an incredibly wonderful place. They're even planning to shut down factories in the Beijing area, so that the smog level will be reduced. This is a VERY BIG DEAL.
Here's what to watch out for:
And what about the United States?
A number of people have said or written to me the same thing, with few variations: "We don't care about Taiwan. Furthermore, we're tied down in Iraq, so we can't defend Taiwan. Even if Bush tried, the Democrats would stop him."
If there's anyone reading this who believes that even the tiniest shred of this claim is true, please put it out of your mind. It is totally wrong, and it's dangerous to depend on it:
So that's the kind of thing we're headed for, one way or another.
In closing, I'll quote a few paragraphs from China's March 2005 Anti-Secession Act:
(Article 2) There is only one China in the world. Both the mainland and Taiwan belong to one China. China's sovereignty and territorial integrity brook no division. Safeguarding China's sovereignty and territorial integrity is the common obligation of all Chinese people, the Taiwan compatriots included.
Taiwan is part of China. The state shall never allow the "Taiwan independence" secessionist forces to make Taiwan secede from China under any name or by any means. ...
(Article 4) Accomplishing the great task of reunifying the motherland is the sacred duty of all Chinese people, the Taiwan compatriots included. ...
(Article 8) In the event that the "Taiwan independence" secessionist forces should act under any name or by any means to cause the fact of Taiwan's secession from China, or that major incidents entailing Taiwan's secession from China should occur, or that possibilities for a peaceful reunification should be completely exhausted, the state shall employ non-peaceful means and other necessary measures to protect China's sovereignty and territorial integrity.
The State Council and the Central Military Commission shall decide on and execute the non-peaceful means and other necessary measures as provided for in the preceding paragraph and shall promptly report to the Standing Committee of the National People's Congress.
(Article 9) In the event of employing and executing non-peaceful means and other necessary measures as provided for in this Law, the state shall exert its utmost to protect the lives, property and other legitimate rights and interests of Taiwan civilians and foreign nationals in Taiwan, and to minimize losses. At the same time, the state shall protect the rights and interests of the Taiwan compatriots in other parts of China in accordance with law."
In the context of a China that Premier Wen describes as "unsteady, unbalanced, uncoordinated and unsustainable," the generational changes that continue every day are making the entire situation increasingly unstable.
From the point of view of Generational Dynamics, this war is coming with almost mathematical certainty. In view of the regional instability, China's extremely rapid militarization and anxiety of the Summer 2008 Olympics, this war could be triggered by any of a wide variety of possible scenarios: a bird flu pandemic, an international financial crisis, a Chinese economic recession, Taiwanese election polling, or any random political action in Taiwan that panics the Chinese.
(If you're not familiar with the role of panic in initiating a war during a generational crisis era, then read how Israel panicked in pursuing the summer Lebanon war with Hizbollah.)
This is what's going on in the world, though few Americans realize or
grasp it. Meanwhile, our clown college Congress is arguing over one
moronic Iraq war resolution after another, and yesterday took time
out to debate whether the earth will be one degree or two degrees
warmer by 2099. It's good to know that our country is in such good
hands.
(22-Mar-07)
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He says the recent fall was caused by "market psychology," but is puzzled why.
According to Yale professor of economics Robert J. Shiller, in an article appearing in a Shaighai paper, there was no rational reason for the February 27 worldwide stock market fall.
The author of the 2001 book Irrational Exuberance, a book title that echoed Alan Greenspan's famous 1996 words at the start of the dot-com bubble, said that after the Shanghai market fell 8.8% on that day, there was no reason except "market psychology" for stock markets around the world to fall 2-4%.
Moreover, most of these markets are still down 4-8%, compared to their close on February 26.
Shiller compares this situation to what happened in 1928-29:
For example, people were really agitated when the Dow dropped 3.8 percent on December 6, 1928.
No news story that day discussed economic fundamentals or gave a clear indication of the cause of the decline, relying instead on sensational prose - "the house that Jack built threatened to topple over" and "traders were quaking in their boots."
But the December 6, 1928, event began a sequence of increasingly severe one-day drops in the Dow over the course of the following year.
Despite a generally rising market, the Dow fell by 3.6 percent on February 7, 1929, 4.1 percent on March 25, 4.2 percent on May 22, 4 percent on May 27 and August 9, 4.2 percent on October 3, and 6.3 percent on October 23, before the infamous "Black Monday" crash.
On each occasion, newspaper accounts further established the 1929 market psychology. The story was always that speculation in the markets had government leaders worried, which is, of course, essentially the same story that we heard from China on February 27.
This is an interesting comparison, and there's validity to it, but he appears to be saying that the February 27 collapse corresponds to December 6, 1928, ten months in advance of the October 1929 crash. The follow on reasoning is that a new stock market crash is still a year off.
But that comparison ignores the LiveDoor scandal that caused an a "Wall Street bloodbath" in January, 2006.
There was another stock market meltdown in May of last year, leading to speculations about a stock market panic and crash.
So if Shiller's date comparison is valid, then we should be very close to a crash right now. And indeed we may be.
Robert Shiller is well-known for having recognized the stock market bubble quite early, and predicting that it would burst and create a financial crisis like the 1930s. His book, Irrational Exuberance, published in 2000, was a bestseller and undoubtedly saved a lot of pain for those who read and heeded it.
But Shiller has always been completely confused about why the stock market bubble occurred at all, and why it occurred when it did. He's always been interested in the concept of a "rational stock market" -- the concept being that investors make rational decisions after evaluating all the available evidence.
So in his book, he tried to come up with "precipitating factors" that caused the new stock market bubble. Frankly, none of them is very convincing, and I don't think even he believes he's doing more than guessing, but he goes ahead with 12 of them:
Basically, Shiller believes that there's no rationality to the market at all. This is the same kind of concept for which I've harshly criticized Bernanke for saying, in effect, that Fed jawboning, even misleading statements, are the major drivers for the economy rather than fundamentals. So Shiller's reasons include some that appear to me to be total nonsense -- the Internet, cable news, cultural changes, and even gambling opportunities. This is really just guesswork.
Ironically, Shiller does come close to hitting on the truth, when he talks about the Baby Boomers:
Although there is no doubt at least some truth to these theories of the Baby Boom's effects on the stock market, it may be public perceptions of the Baby Boom and its presumed effects that are most responsible for the surge in the market. The impact of the Baby Boom is one of the most talked-about issues relating to the stock market, and all this talk in and of itself has the potential to affect stock market value. People believe that the Baby Boom represents an important source of strength for the market today, and they do not see this strength faltering any time soon. These public perceptions contribute to a feeling that there is a good reason for the market to be high and a confidence that it will stay that way for some time to come. Congratulating themselves on their cleverness in understanding and betting on these pouplation trends in the stock market investments, many investors fail to appreciate just how common their thinking really is. Their perceptions fuel the continuing upward spiral in market values. (pp. 27-28)
He almost begins to be going in the right direction in the first of these paragraphs, but in the second paragraphs he wigs out. Once again, fundamentals don't matter; it's "perceptions" that matter.
Ironically, Shiller is very well aware of the underlying data. In fact, it's Shiller's web site at Yale that I and a lot of other people use to get historical data, dating well back into the 1800s. This data includes stock market graphs and graphs of price/earnings ratios.
So, unlike the vast majority of "experts" that you see on CNBC and other TV stations, Shiller actually understands that the stock market was overpriced by a factor of 250% in 1929, and is similarly overpriced today. But he never makes the generational connection that would connect the dots in his work.
I must say that the essay that I wrote last week on "A conundrum: How increases in 'risk aversion' lead to higher stock prices" has been something of an epiphany to me, and has connected a lot of dots in integrating macroeconomic theory with generational theory.
Last year I wrote the article, "System Dynamics and Macroeconomics." This is the seminal article that explains how to use System Dynamics, invented by MIT's Jay Forrester in the 1960s, can be integrated with mainstream macroeconomic theory to take generational dynamics into account.
Now, having had several day to think over last week's article, I'm really beginning to understand what I've written, and to see everything coming together, and a number of major questions being answered.
I'll be writing a lot more about that article as the occasion requires, but here's a summary.
A Harvard economist named Robert J. Barro has done work on "Rare Events and the Equity Premium," to show why stock markets go up, strangely, just when investors become more risk averse. And the more risk averse they become, the greater the stock market bubble grows. This is a mind-boggling result that can be fully explained by adding generational concepts to Professor Barro's work. Here's an outline:
Each of these major international crises occurred roughly 70-80 years after the previous one. What you find is that each new "debt bubble" occurs at exactly the time that the generation of people who grew up during the previous financial crisis all disappear (retire or die), all at once. Thus, the length of time between these "generational" financial crises is approximately equal to the length of a maximum human lifetime.
I have to tell you, dear reader, putting all this together has been an amazing experience for me.
I'll close with one more quotation from Shiller's book, in the concluding chapter:
It is a serious mistake for public figures to acquiesce in the stock market valuations we have seen recently, to remain silent about the implications of such high valuations, and to leave all commentary to the market analysts who specialize in the nearly impossible task of forecasting the market over the short term and who share interests with investment banks or brokerage firms. The valuation of the stock market is an important national -- indeed international -- issue. All our plans for the future, as individuals and as a society, hinge on our perceived wealth, and plans can be thrown into disarray if much of that wealth evaporates tomorrow. The tendency for speculative bubbles to grow and then contract can make for very uneven distribution of wealth. It may even cause many of us, at times, to question the very viability of our capitalist and free market institutons. It is for such reasons that we must be clear on the prospect for such contractions and on what should be our individual and national policy regarding this prospect.
Of course in the current political and economic climate one incurs a substantial risk of embarassment if one goes on record saying that stock market returns will be low or negative in coming years. We have seen in this book that, although the market appears to have substantial long-term forecastability when it is very overpriced (as it appears to be, based on recent data) or, alternatively, when it is very underpriced, there is always considerable uncertainty about the outlook. But an observer who remains silent about the unjustifiably high values because he or she could be wrong about the outlook is no better than the doctor who, having diagnosed high blood pressure in a patient, says nothing because the patient might be lucky and show no ill effects." (pp. 203-4)
That certainly represents my feelings. This web site is more than
just a pastime for me, more even than an obsession. It's a moral
imperative to provide this information if I can. I thank all my
readers for coming back all the time and for making this web site
increasingly popular.
(20-Mar-07)
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This guy and Rosie really deserve each other.
As I described in the previous web log item, CNN and other mainstream media outlets appear to have totally committed themselves to do everything they can to support our enemies in Iraq.
I've mentioned before that CNN has really gone over to the dark side. Their reporters speak contemptuously of anyone who doesn't agree with them. Michael Ware and their other Iraq reporters simply take video of car bombers and describe in gritty detail how people were blown up. Pundit Jack Cafferty is always yelling and absolutely seething with hatred, scorn and venom for anyone who disagrees with him, especially the President. Before last November's election, CNN turned the entire network over for several lengthy specials by Jack Cafferty, who read Democratic party talking points out loud, and then spewed loathing for everyone else.
I've been watching CNN since it began in 1980, and it's sickening to me to see what a piece of garbage it's turned into now.
MSNBC is the same, incidentally, and seems to be moving even farther to the left, if that's possible. We saw that vividly in January, when NBC reporter Chris Matthews was screaming hysterically at the top of his lungs, lambasting George Bush.
The funny thing is that they're getting their comeuppance, because Fox News Channel is kicking their ass. They all loathe Bill O'Reilly, but Bill O'Reilly's ratings are greater than CNN's and MSNBC's combined. You can say that Fox leans to the political right, but Fox really is much more fair and balanced than either CNN or MSNBC, both of which have fallen over sideways to the left.
The most disturbing thing of all is that the Democrats are completely committed to losing in Iraq. They've staked their political lives on it.
From the point of view of Generational Dynamics, this kind of thing has happened before, in previous Crisis periods.
Abraham Lincoln was bitterly criticized during the Civil War in the 1860s. The early battles were "disasters" and "quagmires" for the North. The most vicious criticisms came from the "Copperheads" - Peace Democrats who despised Lincoln and argued that the civil war was his fault. The 1864 Democratic Party Platform called for peace negotiations with the South, to end the war as quickly as possible, "after four years of failure to restore the Union by the experiment of war, during which, under the pretence of military necessity, ... the Constitution itself has been disregarded in every part, and public liberty and private right alike trodden down."
As for Franklin Roosevelt, the Republicans were able to accuse the President of one scandal after another. Just google the words "fdr scandal" to get a sense of how those scandals are still remembered today.
Even so, it's extremely upsetting to me to see how committed the Democrats and the journalists are to our failure in Iraq. I can't forget Senator Ted Kennedy loudly screaming a month ago, "We on this side are interested in protecting American servicemen from the crossfire of a civil war. Some on the other side are more interested in protecting the President from a rebuke."
So, all of the above serves as an introduction to Donald Trump's lengthy rants on CNN. He was on all day on Friday, they replayed pieces of it on Saturday, and then repeated the whole thing on Sunday.
They could spend what was probably over an hour of airtime on Trump's rant, but they couldn't spare even a minute of airtime to describe a poll and some news that things were getting better in Iraq. CNN is so committed to losing that they don't even want to face the possibility that Iraq might get better.
 |
So they couldn't have made a better choice than Donald Trump. Here are some excerpts from the transcript.
First, Trump seems to really like Saddam Hussein:
And Saddam Hussein, whether they like him or didn't like him, he hated terrorists. He'd shoot and kill terrorists. When terrorists came into his country, which he did control and he did dominate, he would kill terrorists. Now, it's a breeding ground for terrorists.
So look, the war is a total catastrophe and they have a civil war going on.
You can really see Trump going bonkers here. First off, he forgets that Saddam was paying $25,000 to any Palestinian family whose son became a suicide bomber that blew up Israeli civilians.
And yes, Saddam would shoot and kill terrorists, but he'd shoot and kill anyone. Or he'd use WMDs on them, or feed them into a meat grinder. Anything to make a point.
He continues:
And perhaps even worse, the rest of the world hates us. You go throughout Europe -- I travel, do deals all over the world. The Europeans hate us. You go to Germany, you go to England, you go to places that, you know, we didn't have problems with, they all hate the Americans because of what's happened.
We had a chance after September 11 to be the most popular, for the first time ever to be the most popular nation on earth, and we blew it."
This is really a laugh. Trump forgets that most of the Muslim world approved of 9/11, and Palestinians were dancing in the streets.
Hmmm. I wonder if Trump thinks we should have gone into Afghanistan? Maybe he thinks we should just have let al-Qaeda terrorists keep flying planes into our buildings, and we shouldn't try to stop it. That's what Osama bin Laden thought would happen. Trump is a man after OBL's own heart.
Now here's something really funny. Donald Trump is "friends" with Senator John Kerry and with John Edwards, but he dislikes both of them now because they lost the 2004 election to George Bush. I've never heard anything like this. Can you believe this guy? Here's what he said, when asked first about John Edwards and then about John Kerry:
[Do you blame him or John Kerry?]
Well, I guess you'd have to say it's a combination of both. Now, obviously, the second man on the ticket doesn't have too much of an impact as -- in comparison to the first. But -- and I like John Kerry a lot. He's a wonderful guy, he's somebody I know and I have -- he's a friend of mine. But I'm so upset that he blew it.
[You're upset because you dislike the current president?]
Well, I think Bush is probably the worst president in the history of the United States. And I just don't understand how they could have lost that election."
I always thought the Donald Trump was strange, but I never realized until now how much of a total fruitcake he is.
But once again, the more important issue here is not Donald Trump, but CNN. They played and replayed these rants over and over for three days, but they couldn't report the poll results I talked about.
Like MSNBC, CNN has become a disgrace to the nation, and it makes me
happy that Fox News Channel is making fools out of them.
(19-Mar-07)
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And Bob Shieffer on CBS's "Face the Nation" asked really dumb questions of Secretary of Defense Robert Gates.
The poll is described in a series of London Sunday Times articles. The poll was conducted by the British polling firm ORB (Opinion Research Business) Group.
Oddly enough, outside of the London Times, the mainstream media is barely mentioning the poll. The only reason I know about it is that someone mentioned it briefly on one of the Sunday morning news shows (Stephanopolous' show, I think, but I'm not sure). It took a while to find anything about it online, but it finally turned up. There was a story about it in The Australian.
You can bet that if the poll results had been bad for America or for the Adminstration, then the results would have been all over the place. In fact, as I'm typing this, CNN International has just spent several minutes talking about some poll that says that Americans have lost faith in the war. This is big news to CNN, but not something that says things are getting better in Iraq. It's really disgraceful.
And they keep replaying Donald Trump's truly moronic hate rant. But no mention of anything getting better. I find it really sickening.
Incidentally, if you go to the ORB link above, you can download a 76-page PDF file filled with tables on the poll results. I'll just quote some of the highlights from the Times articles.
This is despite the fact that in Baghdad, one in four has had a relative murdered (15 percent of Sunnis and 34 percent of Shiites) and one in four has had a relative kidnapped.
The most interesting thing, from the point of view of the Generational Dynamics, is that only 27% believe it's a civil war. I've been saying since 2003 that a civil war was IMPOSSIBLE in Iraq, because Iraq is in a generational Awakening era. All the Washington nonsense about calling it a civil war was purely political.
Other news reports indicate that violence has decreased significantly since the surge began. In addition, the Shia Mahdi militia has mostly disappeared, and Sunni citizens are turning against al-Qaeda and the Sunni insurgents.
There's no way to tell whether the level of violence will continue to level off, or whether it will rise again.
But if there were anything like a civil war going on, 100% of the Iraqis would know it, not just 27% thinking so, and the level of violence wouldn't come down until it had reached a climax.
 |
Secretary of Defense Robert Gates appeared on Face the Nation on Sunday morning. If you go to the CBS News web page for the appearance, you'll find that they made Gates' appear as negative as possible, and they left out the most important part.
Fortunately for you, dear reader, I've transcribed the most important part of his appearance, where host Bob Schieffer asks some really dumb questions about it being a civil war:
Now, you can see from this question how contemptuous Schieffer is of Gates. He asks Gates an incredibly stupid question, to the effect of "Why are you so dumb that you believe they're going to take a break from their civil war and come after us." Once again, a really sickening display from the mainstream media.
Incidentally, Schieffer isn't "challenging the convention wisdom"; Schieffer is spouting Washington politicians' and pundits' "conventional wisdom." It's Gates who's trying to tell him what's actually going on.
The reality is that stoking sectarian violence is a very specific strategy on the part of al-Qaeda and the insurgents. That was behind the bombing of the [al-Askariya mosque in Samarra]. It's behind their efforts today. And they make no bones about the fact that it's their strategy.
You don't have thousands of Shia and Sunnis falling in on each other or attacking each other. You have hit squads going around the city. So this is a purposeful strategy.
It seems to me there is the opportunity to create a political environment in which these issues can be sorted out among the Iraqis themselves, and that's what we're trying to do.
Gates is probably used to incredibly ignorant journalists who think they know more than anyone else, so he has to explain what al-Qaeda's strategy is to Schieffer. But we know from the articles by Jeff Stein, national security editor for Congressional Quarterly, Washington journalists, analysts and politicians have no idea what's going on in Iraq.
I doubt very much that Schieffer even knows what the words "Sunni" and "Shia" mean, except that someone must have told him that they're fighting each other. In his simpleminded thoughts, there's nothing else going on.
So Gates explains to him that Shia and Sunnis aren't killing each other, but there's an explicit al-Qaeda strategy to make him think they are. Obviously, al-Qaeda has succeeded with Schieffer.
In other words, simpleminded Schieffer, who may be going senile, essentially asks again whether the Iraqis are going to stop fighting each other long enough to attack the American troops. What the hell is he thinking?
But I would say that it'd been clear all along that Zarqawi -- [Abu Musab al-Zarqawi] is Jordanian, the current leader of al-Qaeda in Iraq is an Egyptian -- and they've made no bones about the fact that once they've been able to establish a firm base in [Iraq's Anbar province] or in Iraq more broadly, that they intend to try and destabilize the neighbors and eventually attack the United States. They've not made any secret about that.
From the point of view of Generational Dynamics, what Gates is describing is exactly what's to be expected of a country in a generational Awakening period. No country in history, as far as I can tell, has ever had a civil war in an Awakening era, with a few exceptions that fizzled out quickly. The primary example of that type is Julius Caesar's famous "crossing the Rubicon" civil war, that ended almost before it began.
I've been saying for years that a civil war is impossible at this time. The reason is that, in a generational Awakening era, the people themselves don't want any part of a war. I knew that, sooner or later, it would be the Iraqi people who would turn against the "civil war" concept, and now it's happening. The Iraqi people were stirred up by Iran and al-Qaeda, but finally it all seems to be fizzling out, and Iraq is settling down to a normal Awakening era country.
Incidentally, while I'm on this subject, I might as well repeat that I also said this of Lebanon, which is also in a generational Awakening era. For months last fall and winter, you could hardly turn on CNN or the BBC without hearing them predict that there was going to be another civil war in Lebanon. It was a steady drumbeat, and it was predicted by pundits around the world.
I said, and I'll say it again, a country CANNOT have a civil war in an Awakening era.
Since 2003 I've posted hundreds of articles, and most of them contain Generational Dynamics predictions. NOT A SINGLE ONE has turned out to be wrong. People called me "ideological" (without telling me what ideology they believe I followed) because I said that a civil war in Iraq is impossible, and I've been proven right over and over, while all the highly-paid analysts and pundits have been proven wrong time after time.
People used to call me "crazy" because I predicted in 2003 that Yasser Arafat's death would signal a generational change that would lead the Mideast into war, and there's hardly been a day since Arafat's death that the level of Mideast conflict hasn't gotten worse.
People used to call me "hysterical" when I said, as far back as 2002, that we're entering a new 1930s style Great Depression, probably by the 2006-2007 time frame. Now, with the housing bubble meltdown in full progress, there are a lot of "hysterical" people, just like me. Being hysterical is almost (but not quite) mainstream.
I said in 2004 that the U.N. was completely irrelevant to the Darfur genocide, and they would never stop it until it reached a climax. Now, three years later, the ongoing genocide is as bad as ever, and people are still holding vigils and such to get the U.N. to "stop the genocide." Sorry folks, genocide is as important to being a human being as sex is.
Generational Dynamics has proven itself to be right, time after time. Not every Generational Dynamics prediction has yet come true, but they're all getting close, and not a single one has been proven wrong.
I like to say that it's easy to get a million predictions right -- just make two million predictions. That's what the pundits do; their predictions are no better than chance guesswork, but even a stopped clock is right twice a day. But Generational Dynamics predictions are never wrong.
I've challenged everyone to find a web site anywhere in the world with anything close to the predictive success that this web site has had. No has ever pointed one out to me, because none exists.
I thank all my readers for continuing to come back, making this an
increasingly popular web site for people who really want to
understand what's going on in the world. I'm still keeping up with
the e-mail questions, though sometimes it takes a few days to answer,
so as before you're welcome to send me a question or click on the
COMMENT link at the top of the page.
(19-Mar-07)
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The remarkable détente between India and Pakistan may go down with Musharraf.
 |
A major political and constitutional crisis in Pakistan has been triggered by the March 9 suspension, by President Pervez Musharraf of the country's Chief Justice Iftikhar Muhammad Chaudhry for abuse of office.
The suspension has triggered large riots by, of all people, lawyers. It's really hilarious to see these men in suits and ties reliving their childhoods:
 |
Nonetheless, even if the scenes are funny, the situation is serious. There appears to be a growing level of protest against Musharraf, especially after the police used teargas and rubber bullets against the rioting lawyers, and the police entered the offices of Geo TV, an opposition TV station, kicking down doors and wrecking property. The CJP (chief justice of Pakistan) himself appears to be turning into something of a folk hero.
Musharraf has defended his actions, saying that his family loves the CFP's family, and that he was only responding to specific charges of judicial abuse sent to him by Prime Minister Shaukat Aziz. He said that the violent police actions were not authorized by him, and that the perpetrators would be punished. "I am blamed for everything," he said.
The question to be answered this week is whether the crisis will grow. The Lahore lawyer's association is planning a complete strike on March 22.
However, reading all the press reports of the situation, I'm unable to find any evidence of widespread public opposition to Musharraf. As I've said many time, Generational Dynamics explains and predicts the behaviors and attitudes of large masses, entire generations of people. The attitudes and behaviors of a small group of lawyers do not necessarily reflect the attitudes of the public at large.
India and Pakistan are both nuclear powers, and they almost went to war in 2002, but they drew back, thanks to a remarkable détente that Pakistan's President Pervez Musharraf and India's Prime Minister Manmohan Singh have engineered over the last few years.
Musharraf, born 1943, and Singh, born 1932, are both survivors of World War II and the subsequent genocidal war between Pakistan and India over Kashmir and Jammu, a dispute that still seethes today, even though the United Nations partitioned the region into Indian and Pakistani regions in 1947. (Birth years corrected on 24-May)
As survivors of the last crisis war, both men have spent their lives doing everything possible to guarantee that their children and grandchildren will never have to go through any similar experience. This explains why Singh and Musharraf pushed so hard, and succeeded in forging the détente between the two countries, and have maintained peace, so far, over Kashmir and Jammu.
| Conflict risk level for next 6-12 months as of: 9-Feb-2006 | ||||
|---|---|---|---|---|
| W. Europe | 1 | Arab Israeli | 3 | |
| Russia Caucasus | 2 | Kashmir | 2 | |
| China | 2 | North Korea | 2 | |
| Financial | 3 | Bird flu | 3 | |
| ||||
It's because of this détente that I set the risk level for Kashmir at Yellow (2, medium risk). However, if either Singh or Musharraf disappears, for whatever reason, then he will be replaced by someone from a younger generation who will be much more militant towards the other country, especially over Kashmir and Jammu, and the probability of nuclear war will increase substantially.
|
Furthermore, within Pakistan itself, Islamist extremism has risen greatly recently, largely spurred on the "success" of the London subway bombings, perpetrated by young British Muslims trained in Pakistan. Musharraf has been working effectively to control this extremism, but a younger generation Pakistani president would be far less motivated and effective.
Generational Dynamics predicts there will indeed be a new genocidal
crisis war between India and Pakistan, and since both countries
possess nuclear weapons, there's little doubt that they will be used.
It's impossible to predict when such a war would begin, but if
Musharraf disappears and is replaced by someone from a younger
generation, things will certainly start moving along.
(18-Mar-07)
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In the end, it's just another way to bash our troops.
It's a familiar argument to me: TV is taking over our children's minds and causing them to become violent. I've heard such things many times, usually coming from an unholy alliance of the left and the right.
On the right this time, we have conservative media critic L. Brent Bozell III, saying that "24" showed 67 scenes of torture in its first five seasons. He made a particularly tortuous argument to claim that torture scenes are harming children: He said that they're OK in movie theatres, where kids won't accidentally see them, but not on TV.
On the left, Jane Mayer from the New Yorker and Clyde Haberman from the New York Times used the "24" controvery to bash the armed forces.
"I finally did start watching '24,'" says Mayer, "and there, every week, it was the best advertisement you could ever run for torture." According to Mayer, the "military elite" (whatever that means) are getting concerned about the depiction of torture in "24."
Mayer reported on the growing dissent among military elite about the depiction of torture in "24," and that its portrayal of Jack Bauer is "influencing soldiers to use torture methods."
"He cuts through the red tape," said Mayer. "And the red tape in this case happens to be the U.S. Constitution." (Incidentally, you can see a number of "24" torture clips, narrated by Mayer, on the New Yorker web site.)
I suppose I shouldn't be surprised by what's happening. Senator John Kerry has repeatedly affirmed his belief that American soldiers are torturers, rapists and murderers, and journalist Seymour Hersh (like Jane Mayer, from the New Yorker) thinks that they're Nazis. Kerry also thinks that they're stupid because they got "stuck in Iraq," so it's not surprising the Jane Mayer thinks that they're too stupid to distinguish television fantasy from real life. (I wonder if Mayer has taken to torturing people, now that she's watching "24"? Have any of her children or pets been murdered or hospitalized recently? It's worth checking out.)
I've been hearing nonsense like this my whole life. When I was growing up in the 1950s, my favorite comic book was Superman. One day I saw a newspaper headline about how comics were causing children to become violent. I knew what comics they must have been talking about -- those comic books with ugly monsters on the covers. I never read those, so I knew I was safe until I read the article and learned the Superman comics were among those driving children to violence. It was thus at an early age that I learned what morons some politicians can be.
Anyway, this gave rise to the whole "Dell comics are GOOD comics" advertising campaign. Dell comics featured the likes of Donald Duck and Woody Woodpecker. They were OK, but they were no Superman. By the way, didn't some of these cartoon characters occasionally fall off of cliffs or get hit by anvils? Shouldn't we be afraid that this teaches kids that it's ok to push people off cliffs or hit people with anvils? We have to be vigilant, don't we?
In the 1970s, it was the TV crime drama Kojak that was turning our kids to violence. Then, in the 1980s, an unholy violence between the Christian right and the feminist left started a man-bashing campaign to claim that "sexually exploitive material" was driving men to "objectify" women, turning them into enraged robots that abuse children and rape women.
The main "evidence" of this was Christian right anti-porn crusader Dr. James Dobson's interview with Ted Bundy. Bundy had tortured, raped, sodomized and murdered 30 girls and women. The interview, was conducted in 1989, just hours before Bundy was executed in an electric chair for his crimes. Bundy blamed his crimes on having read sexual materials. In other words, Bundy wasn't responsible for his crimes, since the porn made him do it. It's like a rapist blaming the crime on the victim's tight sweater.
Here a comment from a a 1985 article explaining why media violence is causing people to be violent:
Senator Simon is talking through his hat. There is absolutely no such evidence whatsoever. Several years ago, I actually researched the evidence about this subject, and there's no evidence whatsoever that violence or sexuality in media causes rape or any other crime. It turns out that there IS evidence that the worst pathological "anger retaliatory rapists" are likely to have been badly abused by their mothers, but that fact somehow never makes it into the mainstream newspapers.
Another fact that you never hear about in the newspapers has to do with the explosion of porn, child porn, and violent porn on the Internet in the 1990s. Violent and child porn is illegal, and there was very little of it around in the 1980s. But with online services first, and then the World Wide Web internet, all these materials became widely available. During the dot-com bubble, when everyone was spending huge amounts of money on companies with no income, it used to be said jokingly -- but truthfully -- that the only companies making a profit on the Internet were porn companies.
In the 1990s, the Christian right and the feminist left were in a full-scale man-bashing jihad mode. They predicted that the flood of violent and child porn would turn men into robots who would mindlessly rape and abuse women and children.
Well, the opposite happened. Rapes fell dramatically, as did all violent crimes in the 1990s. And, in a 2001 study by the Dept. of Justice, child sexual abuse dropped enormously in the 1990s. Between 1992 and 1998, substantiated cases of child sexual abuse fell 31% -- almost a third. All forms of child abuse decreased, but child sexual abuse fell much farther than the rest. This is an incredible result, especially given the hysterical claims of the Christian right and the feminist left about violent and child porn. And yet, surprise! surprise! I've never heard or seen this enormous decline discussed in the mainstream media.
Was this dramatic decline in gender-based crime caused by the sudden explosive availability of child porn and violent porn on the Internet? That's probably part of it, and it indicates that if officials really wanted to protect women and children (which they don't) then they would decriminalize these things. It seems perfectly reasonable that psychotic men who rape and abuse women and children can be satisfied by porn in some cases, thus reducing crime against women and children.
But the main reason for the reduction in crime in the 1990s is the generational reason.
Crime declined in the 1990s because most crime is perpetrated by people aged 15-25, and people in Generation-X moved past this age range.
Children who grow up during generational Awakening eras, like America's 1960s-70s, become victims of the social convulsion that occurs in that time. In their book The Fourth Turning, historians William Strauss and Neil Howe call this the "Nomad archetype," because the social turmoil surrounding them causes them to become angry, disaffected and alienated from society. Strauss and Howe found that crime and violence were reduced in the two decades preceding the civil war, and in the two decades preceding World War II, when those Nomad archetype generations became older.
So crime and violence are much more related to generational changes than to anything else.
But that doesn't stop the hucksters who use scare tactics to raise funds for their organizations by blaming the media, or comic books or television.
In The Music Man, the root of all evil was the pool table. Here are a few lines from the song, "You Got Trouble" about the new pool hall in town in 1890s Iowa:
1=Low risk
2=Med
3=High
4=Active
Now, I know all you folks are the right kinda parents.
I'm gonna be perfectly frank.
Would you like to know what kinda conversation goes
On while they're loafing around that Hall?
They'll be trying out Bevo, trying out cubebs,
Trying out Tailor Mades like Cigarette Fiends!
And bragging all about
How they're gonna cover up a tell-tale breath with Sen-Sen.
One fine night, they leave the pool hall,
Heading for the dance at the Armory!
Libertine men and Scarlet women!
And Rag-time, shameless music
That'll grab your son and your daughter
With the arms of a jungle animal instinct!
Mass-staria!
Friends, the idle brain is the devil's playground!
Trouble, oh we got trouble, right here in River City!
With a capital "T" and that rhymes with "P"
And that stands for Pool, that stands for pool.
We've surely got trouble! Right here in River City, Right here!
Gotta figger out a way to keep the young ones moral after school!
In the play, "Professor" Harold Brown uses this tactic to sell the town 76 trombones and dozens of other musical instruments for the boys band.
Today, we have hucksters on the right and the left frightening people in the same way. They never have a shred of evidence to back up their claims, but they frighten people into paying them or their organizations. Charles Dobson's career really took off after the Bundy interview. Andrew Dworkin and other pathologically ill feminists made millions by writing books claiming that all men are rapists and batterers, or that all sex is rape.
I have to say a word about video games. About ten years ago, I saw a television news panel talking about how video games were supposedly driving kids to violence. One guy was really fired up. He was talking about how kids are unable to distinguish "reality" from the video game, and they think that if it's OK to kill things in a video game then it must be OK to kill in real life. He worked up to a crescendo and shouted his main point: "When kids are killing Martians in a video game, those are REAL Martians." The faces of the other tv panelists remained appropriately grim, but I couldn't stop laughing hysterically.
So now it's "24." We have fund raisers and pseudo-journalists worried because "other people" are too stupid to recognize the difference between a tv script and real life. These fund raisers and pseudo-journalists don't have trouble with this, of course; it's the hoi polloi who are too dumb to know. And sure enough, this nonsense will sell magazines and bring in lots of donations.
There's one final point. Mayer and others have claimed that torture has become more acceptable to Americans since 9/11, and they say that "24" is the cause.
Well, they're half right. Torture HAS become more acceptable to Americans, but not because of "24." America is heading deep into a "generational Crisis" era, 62 years after the end of World War II. As I've said many times on this web site, when a country enters a generational crisis era, the value of a human life goes down. By the climax of the crisis war, the only important value is personal and national survival, the value of an individual human life is essentially zero, and genocide becomes acceptable.
The fact that torture is becoming more acceptable to Americans (as it also is to other nations in crisis eras) is just another sign of what a generational crisis era is like.
Furthermore, the new season of "24" begins with major terrorist attacks in Los Angeles and elsewhere on American soil. Anything like that happening in America now would immediately panic the entire country. The political squabbles we see today would disappear. Instead, Americans would be so furious that war, torture and genocide would all become instantly acceptable.
In that sense, "24" is very realistic.
(18-Mar-07)
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And readers complain to me about oil and Iran and my Conflict Risk Graphic.
Last week, Jordan's King Abdullah told a joint session of Congress that the Palestinian issue is the core issue in the Mideast. Abdullah gets nothing but abuse from stupid Americans when he says this.
I've pointed out many times how ABC's George Stephanopoulos looked like an idiot in November because Jordan's King Abdullah had to tell him five times of the importance of the Israeli/Palestine situation, but he was still clueless.
Just to show that this is independent of politics, the stupidity of the liberal George Stephanopoulos has now been matched, and more, by an editorial on the conservative editorial page of the Wall Street Journal. The writer left the editorial unsigned, which was probably the only smart this moron did.
 |
The editorial is called "Hashemite Hokum," referring to the Hashemite ethnic group. King Abdullah is Hashemite, and the official name of his country is the Hashemite Kingdom of Jordan. So the WSJ editorial writer not only exhibited his ignorance and stupidity, he did it in a way that is ethnically offensive. No wonder so many people hold Americans in general and American journalists in particular in such contempt. I wouldn't approve of foreign journalists making ethnic slurs about an American president, and I don't approve of American journalists making an ethnic slur about the leader of a foreign country, a staunch ally to boot.
Here's part of the editorial:
On Monday, 38 Iraqis were killed and 100 injured by a car bomb in downtown Baghdad. Apparently, King Abdullah would have us believe that the Sunni terrorists behind that massacre of their fellow Arabs were registering a protest against Israel's occupation of the West Bank. Perhaps he also thinks that the murder in 2005 of former Lebanese premier Rafik Hariri was a function of Israeli policies, and not of Syria's desire to dominate its neighbor. Ditto for the internecine fighting among Palestinians, repression in Egypt and al Qaeda's efforts to unseat the House of Saud.
Jordan is a friend of America; it played a significant role in killing Abu Musab al-Zarqawi last year. Too bad its king can't match the hard-headedness he's shown in private with some candid public speaking about the real source of the Arab world's woes."
You can see how these "great thinkers" of our time reduce everything to trivial politics. The Democrats think that al-Qaeda has nothing to do with what's going on in Iraq or the world, but if we'd only invade Pakistan and find Osama bin Laden, then all our problems will be solved.
 |
The Republicans think that al-Qaeda is the ONLY problem, and that if we'd only invade Syria and kill them, then all our problems will be solved. These politicians, in both parties, are so stupid that it's amazing to me that they can figure out how to get out of bed in the morning.
Anyone who just looks at the adjoining map of the Mideast can see what the problem is. Except for the orange of the Orthodox Christians in the north, the entire region is massively green -- representing Muslims -- except for that tiny red dot in the middle, representing Israel. American politicians have no sense of all of this; to them the entire Mideast is neither red nor green, but uniform grey, which means they see nothing. But to someone who lives in the midst of this region, let's say hypothetically the King of Jordan, that red dot has enormous significance.
I guess what amazes me, besides the sheer stupidity of these politicians, is their unwillingness to at least give a little deference to King Abdullah. Instead of treating him like a hack politician, it would be nice if they thought about his arguments, and even wondered if he might possibly know something that they don't. But no, Washington politicians know everything. They're in the center of the universe, and their words are the Golden Words of Truth, even when they change their minds five times a week.
These people are supposed to be our leaders. They're supposed to know what they're talking about, so that the citizens of our country can listen to them and know what's going on in the world. The stupidity of politicians came to public attention in November, when Jeff Stein, national security editor for Congressional Quarterly, wrote an article showing that Washington politicians and analysts, even analysts specializing in the Mideast, don't know even the simplest facts about what's going on.
So it's no wonder that my readers, who are not required to be experts, are so confused about what's going on. What are they supposed to think when politicians insult the King of the Hashemite Kingdom of Jordan, or when politicians come up with one moronic, hysterical policy proposal after another about "getting out of Iraq"? What is any citizen supposed to think, when Washington is populated by clowns?
One thing that I sometimes hear from readers, and have been told by more than one friend in person, is that oil is the only important thing in the world. One person in a blog recently wrote that my site talks about "a world war over oil." Geez, where did I say that? I rarely even talk about oil.
The obsession with oil is common to both parties, but it's expressed mostly on the left, and it's part of the paranoia that Halliburton is controlling the world. This leftist paranoia has its roots in the early 1900s, when John D. Rockefeller gained monopoly control of the oil market through his company, Standard Oil, and became a hated symbol of the right in the 1900s. He became the world's first billionaire, and when he died he gave a great deal of money away to philanthropic organizations. This is where the oil paranoiacs get the phrase "oil money"; anything coming from Rockefeller's century old fortune is considered to be as evil as they believe he was.
The oil paranoia was given a boost in 1974 when John's grandson, Nelson Rockefeller, became Vice President of the United States after Richard Nixon's resignation. Nelson's father, David Rockefeller, had just formed the Trilateral Commission, a worldwide philanthropic organization with members from many ideologies and countries. If you read stuff from the paranoics of the time, you'll see (as I recall) that they were saying that Nelson Rockefeller, Henry Kissinger and Paul Volcker were amassing wealth for themselves by controlling all the oil in the world. As I recall, the paranoics even claimed that the Trilateral Commission was controlling the White House and the world; this belief was expressed when it turned out that several members of the Trilateral Commission were in President Carter's administration, and that Carter himself was a member.
If you'd like to read some of this paranoic stuff about the Rockefellers, oil, and controlling the world, just type the words "rockefeller oil" into google, and you'll get many examples.
However, coming back to reality, oil is important in today's world, but it's about 10th or 20th on the list of important things. The Palestinian issue is way more important. The price of tortillas is more important than oil; in fact, food in general is far more important than oil (food is becoming increasingly expensive, and you can't eat oil). Water is far more important than oil (there's a growing water shortage, and you can't drink oil). The increasingly rapid militarization of China is more important than oil. The fact that America owes China hundreds of billions of dollars is more important than oil. Russia's increasing xenophobia is more important than oil. I could go on and on, and after naming five or ten more important issues, I'd probably come to oil.
Another complaint I hear, though less often, has to do with Iran. The issue was best expressed by this message from a reader, who wondered why Iran doesn't appear on my Conflict Risk Index graphic:
In my opinion, this is ONLY the most dangerous situation in the world today but you think it is not even worthy of a rating?????
It is a 3 easily, in my opinion -- that is if one frees oneself of Cognitive Dissonance over the the strong prevailing view that war with Iran just has "what me worry?" status (sorry about the snarky that remark)."
I've only changed the risk levels on the Conflict Risk Index graphic once, and it's now been over a year since I've changed the risk levels on the current graphic. Here's how I set the risks on February 9, 2006:
| Conflict risk level for next 6-12 months as of: 9-Feb-2006 | ||||
|---|---|---|---|---|
| W. Europe | 1 | Arab Israeli | 3 | |
| Russia Caucasus | 2 | Kashmir | 2 | |
| China | 2 | North Korea | 2 | |
| Financial | 3 | Bird flu | 3 | |
| ||||
When I originally defined the Conflict Risk Index on May 30, 2005, here's how it stood at that time:
| Conflict risk level for next 6-12 months as of: 30-May-2005 | ||||
|---|---|---|---|---|
| W. Europe | 1 | Arab Israeli | 2 | |
| Russia Caucasus | 2 | Kashmir | 1 | |
| China | 2 | North Korea | 3 | |
| Financial | 3 | Bird flu | 3 | |
| ||||
If you compare the two, you'll see that I made three changes: I lowered the risk level for North Korea, and I raised the risk level for Arab/Israeli and Kashmir. You can read the referenced article for the reasons.
But why isn't Iran even on this graphic? Isn't war with Iran far more likely than some of the others, as the reader claims? Aren't American or Israeli warplanes just about to bomb Iran almost any moment now, if only to get their oil, as many on the left including nutcases like Seymour Hersch believe, and isn't that riskier than anything else on the graphic?
From the point of view of Generational Dynamics, the danger from Iran isn't even close to the danger from the others on the graphic.
If you read my long, rambling analysis of Iran that I just wrote, you'll see that a lot of the problems with Iran have to do with the President, Mahmoud Ahmadinejad.
The situation with Iran may look highly risky for political reasons, but from the point of view of Generational Dynamics, it's not. That's because Iran is in a generational Awakening era. Even if America or Israel bombed Iran (which is far from certain, despite views of political pundits), it would not with certainty trigger a wider war, any more than the Iraq war or the summer Lebanon war did.
The six regions shown on that graphic were chosen because those are the six regions where a regional war would lead to a world war. (See my November, 2004, article"The Six Most Dangerous Regions in the World.") That's because of (1) international treaties, and (2) the participants are in generational Crisis eras. Neither of those conditions holds in the speculative scenario of bombing Iran.
Now, the semantic/philosophical issue is, what does it mean to "trigger" or "lead to" a wider war? You could argue that bombing Iran would bring in China or the Palestinians; but they have no treaty obligation to join the war, so there's no imperative. You could argue that they might come in anyway, but in that sense, anything could be a trigger, as the Danish cartoon controversy has shown.
I'm certainly not saying the Iran situation isn't dangerous. Of course it is. But it's not nearly as dangerous as, for example, the situation between the Jews and Palestinians. A war between them would certainly lead to a world war, but bombing Iran would probably not. In fact, the irony of the situation is that the chances of bombing Iran are made more likely by the fact that everyone understands that it wouldn't lead to wider war; but bombing North Korea is less likely, because everyone understands that it WOULD lead to a wider war.
As I've developed Generational Dynamics over the past 5+ years, it's become increasingly apparent to me that many of its conclusions are counter-intuitive. This has been true in the Mideast, in Darfur, in Iraq, and in other cases as well. It's like being in the middle of a cold wave and predicting that the weather will get hotter next summer: It just doesn't seem possible when you're freezing your butt off, but the long-term trend predictions are more important than today's thermometer reading.
Right now, there's little doubt that the Israeli/Palestinian issue is the most dangerous situation in the world, though the relations between China and Taiwan are a close second (and I really ought to change my Conflict Risk Index graphic to reflect that). If you believe that al-Qaeda is the only evil we have to deal with, then you should be aware that Hamas is closely related to Egypt's radical Muslim Brotherhood, which is increasingly closely linked with al-Qaeda.
It's tempting to blame all the world's woes on our presence in Iraq, but every Muslim in the world knows that we just want to "pull out" and go home; al-Qaeda's objective is to humiliate us as much as possible in doing so.
But every Muslim in the world also knows that Israel is not going to "pull out." Muslims know that unless Israel is destroyed militarily, it will be there forever. That's why al-Qaeda's goal is not to humiliate Israel, but to destroy Israel. And a war between Palestinians and Jews would draw in one country after another in the region, and numerous countries around the world including, of course, America. That's why the Arab/Israeli conflict has a Risk Level of High, even though Iran and oil aren't even on the graphic.
The Hashemite King of Jordan knows that, but our stupid politicians,
analysts and journalists in Washington don't have a clue.
(17-Mar-07)
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Saying that Moscow "will not play anti-American games" with Iran, Russia gave Iran a strongly worded warning on Monday: If Tehran does not meet the demands of the U.N. International Atomic Energy Agency (IAEA), then Moscow will withdraw its support.
"For us, Iran with a nuclear bomb or the potential to make one is unacceptable. We will not play anti-American games along with them," said the Russians. "Unfortunately, the Iranians are abusing our constructive relations and have done nothing to convince our colleagues of the consistency of Tehran's policies."
Russia backed up its threat by canceling delivery of nuclear fuel to the Russian-built Bushehr nuclear power plant. Russia has been building the plant since 1995, but is now canceling the scheduled September opening. Russia gives failure to pay $25 million monthly payments as the reason.
This is only the latest in a long series of humiliations for Iran, and especially for its colorful president, Mahmoud Ahmadinejad. Ahmadinejad has done one thing after another to inflame world opinion against himself and Iran -- threats to wipe Israel off the face of the earth, a moronic holocaust denial conference, and game-playing with the UN agencies, the EU and the US over nuclear development.
Ahmadinejad is being strongly criticized, even by former supporters in Iran, for having gotten the world so angry.
The holocaust denial conference brought
Long-time readers of this web might possibly have noticed that I've avoided discussing a lot of issues about Iran. This is because I've been confused about where Iran is going, since Iran seems to be contradicting itself in a sense. I'd now like to provide some additional analysis. I apologize for the long, rambling nature of this article, but there's a lot to be said.
The main contradiction is that Iran under Ahmadinejad has been far more belligerent than is appropriate for a country in a "generational Awakening" era. During such an era, like America's last Awakening era, in the 1960s, the public has little or no taste for war, except to prevent a worse war.
When Ahmadinejad started repeatedly and so aggressively talking about wiping Israel off the face of the earth, I realized that something was going on that I didn't completely understand. Why would a country in a generational Awakening era be trying to provoke a war with Israel, a country which was not its enemy? That's something that might happen during a generational Crisis era, but not an awakening era.
Generally speaking, Generational Dynamics analyzes and predicts the behaviors and attitudes of large masses of people, entire generations of people. It does not attempt to analyze the attitudes of individuals or small groups of people, even groups of politicians, because any individual has a free will to do what he wants. It's only the behaviors and attitudes of large masses of people that go in repeatable cycles. The attitudes of politicians are not important except insofar as they reflect the attitudes of the masses of people.
So the first time that Ahmadinejad talked extremely belligerently about Israel in this way, I assumed it was simply a gaffe, and that it wouldn't be repeated. But when he kept repeating the same threat over and over and over again, I made the following assumption: That he must have the support of large masses of people in this threat. It must be the will of large masses of Iranian people to wipe Israel off the face of the earth. It still didn't make sense to me that this would happen in an Awakening era, but I thought there must be some issue with Israel that I wasn't recognizing.
Now, 1½ years after Ahmadinejad starting making these threats, I'm beginning to understand more clearly what's going on. The key is to look at where Ahmadinejad is succeeding, and where he's failing.
From the beginning, I've tried to understand Ahmadinejad by comparing him with President John Kennedy. Some people have found this strange, but it's actually a highly relevant comparison: Ahmadinejad became president at the start of Iran's Awakening era, and Kennedy became president at the beginning of America's Awakening era, at a time when the public was still very fearful of a third world war against the Soviet Union and China.
Let's begin by quoting some of President Kennedy's inauguration speech:
This was not an "antiwar" speech by Kennedy; it was actually a very idealistic statement, in the context of the "Truman Doctrine," that under his leadership, Communism would not be allowed to spread.
The context of this speech was that Kennedy was a young President, the from the Hero generation of World War II, and he and other Americans saw his job as stopping Communism. (It was widely believed that World War II could have been avoided if Hitler had been stopped early. Generational Dynamics tells us that this isn't true, but it was still widely believed, and is still believed today. Thus, people believed that stopping Communism meant preventing World War III.)
His belief that by stopping Communism, America could "truly light the world" is particularly ironic in view of what happened. First, when Fidel Castro took over Cuba, right off America's shore, Kennedy's promise was put to the test, a test that he believed that he could not fail. President Kennedy launched TWO pre-emptive wars against Cuba -- the first, based on faulty CIA intelligence, led to the "Bay of Pigs disaster," and the second, the blockade of Cuba, risked nuclear war with Russia. Then, when a Communist government in North Vietnam threatened to spread Communism to South Vietnam, Kennedy launched the Vietnam War, which led to America's first defeat.
Looking at Kennedy's actions in light of our understanding that America was in a generational Awakening era helps us understand Ahmadinejad's actions in Iran's Awakening era today.
Iran's last generational Crisis war was the Iran/Iraq war of the 1980s. But let's go back to some of the previous crisis wars of Persia, as it was then known. The Battle of Chaldiran, occurring on August 13, 1514, was the major battle that established the borders between two great empires -- the Ottoman Empire, practicing Sunni Islam, and the Persian Empire, practicing Shia Islam.
In fact, it's always important to remember that several great civilizations meet in the Mideast. Constantinople had fallen to the Ottomans in 1453, causing the seat of Orthodox Christianity to move permanently to Moscow. In later wars, the Sunni Muslim Ottomans would fight major wars against Christians in the Balkans and in the Caucasus.
Persia also fought major wars with the Russians (Orthodox Christians), especially in the Caucasus. The Persians defeated Russia's Peter the Great in a crisis war that ended in 1723, and the Russians defeated the Persians in a crisis war that ended in 1813.
The war that ended feudal rule in Persia was the Great Constitutional Revolution of 1906-1911. This war transformed Iran into a modern parliamentary state, ruled by the Pahlavi Shahs who were allied with the West and with the United States in particular.
The Shah of Iran was overthrown by the 1979 Islamic Revolution civil war, and this was followed by the Iran/Iraq war.
From the point of view of Generational Dynamics, it's a crisis war that sets a country's agenda for decades to come. A crisis war is so horrible that it becomes the survivors' lifetime goals that their children and grandchildren should never have to suffer like that. The survivors impose austere rules and create new institutions to guarantee that the (alleged) mistakes that led to the crisis war should not be repeated. Problems arise with the generation born after the war. These kids have no patience with the austere rules that are being imposed on them, and this leads to the "generation gap," and huge political battles that occur during the country's Awakening era.
So we can list some of the major factors for Iran that went into this period, because these are the factors that are influencing Iran as they enter an Awakening era:
I'll next reach some conclusions about where Iran is going, but first I'd like to summarize the methodology I've been using.
There are mobs of journalists, analysts and pundits in Washington who have written analysis pieces on Iran in the recent past, and they're all the same. They say that what happened in 2006 was caused by what happened in 2005. What happened in 2005 was caused by what happened in 2004. Or else, what happened in 2005 was because of something that Bush said in 2005. This is true of serious analysts as it is of popular writers like New York Times columnist Thomas Friedman.
The Generational Dynamics methodology correctly identifies relevant events from decades or even centuries back, and relates them to what's happening today. These historical events aren't selected at random; they're selected according to solidly established generational principles. The analysis of Iran given above illustrates this methodology.
I want to single out the importance of the Iran/Iraq war of the 1980s. There must be hundreds of journalists and analysts who write so-called "analyses" of Iran, Iraq or the Iraq war without even understanding how important the Iran/Iraq war is to these topics today. If they'd only stop and think for a moment, they'd realize, for example, how important our own Declaration of Independence and Bill of Rights are to American's strategic thinking, especially since politicians and journalists invoke them all the time. Well, why wouldn't similar historical concepts apply to Iran and Iraq?
Having completed the generational timeline analysis above, we can now speculate on possible future directions for Iran, and we have to imagine two possibilities: Iran with Ahmadinejad, and Iran without him.
An Iran like Ahmadinejad will continue the same contradictory policies, because Ahmadinejad will force them as long as he can. He will make more and more mistakes, just as Presidents Kennedy and Johnson did in 1960s America, when they pursued confrontation with the Communists, first in Cuba then in Vietnam. Ahmadinejad will be forced to abandon his unpopular policies either because he'll be driven from office or because the people will force him to.
Generational Dynamics tells us that the only policies Iran will continue to follow will be those supported by the masses of the Iranian people; the other policies put forth by Ahmadinejad will not last long.
In fact, a web site reader referred me to a interview by CNN's Christiane Amanpour with a "very high level official" in the Iran government. The interview apparently assumed that Ahmadinejad would be gone; at least, he wasn't mentioned in the article.
According to this article, Iran and the U.S. are "natural allies," because "The one country that never invaded us was America."
And he added, "We are natural allies. Why? Because now the major threat for both Iran and the U.S.A. is al Qaeda."
This is exactly right, and it exposes once again the major contradiction in Ahmadinejad's policies: He's siding with and supporting Palestinians and other radical Sunni groups that have been Iran's enemies for centuries. America is not Iran's enemy, and neither is Israel. Sunni Arabs are Iran's enemies, and Ahmadinejad is supporting them in their conflict with Israel.
Let's return to Amanpour's interview and focus on two points: nuclear weapons and Israel. First, nuclear weapons:
"We do not want to have to prove that we are strong. Our nuclear program is not to show the U.S. we are strong. It is because of our previous centuries of threats and invasions," he said.
Aha, I intervened, "so you do want the bomb?"
The official replied: "No, our nuclear program is not about the bomb it's about power. We want to say -- that without the UK, U.S., France, Russia, Germany -- we have done this ourselves [set up a peaceful nuclear program].That is our strength."
He said the need to show power was "just common sense after 300 recent years looking over our shoulder," running through the list of those who have sent armies into Iran -- from Alexander the Great to the Mongols to the Ottomans to Russia to Saddam Hussein.
Then he paused. "The one country that never invaded us was America."
Here you can see how utterly foolish are all the so-called analyses written by almost every Washington analyst or journalist, and why Washington politicians are completely ignorant when they spout suggested policies about Iran (or Iraq). This Iranian official is listing important historical events, and EVERY SINGLE ONE of those historical events relates to a Generational Crisis War. Ordinary journalists and analysts don't have a clue about any of this.
But Generational Dynamics also tells us that the Iranian official is not telling the truth about not wanting the bomb (though he didn't really say they didn't, did he?). Iran wants security, and they believe that getting a bomb is the way to gain security. This is what Iran learned from the Iran/Iraq war.
However, it does show the way to gain a TEMPORARY postponement of Iran's nuclear weapons development. Today the assumed threat is that either America or Israel will bomb Iran's nuclear facilities if they pass the "point of no return" for weapons development. If America and Iran became allies, then America could provide security for Iran against their common enemy: al-Qaeda and hardline Sunni extremists.
How could America and Iran become allies? Once again, we have to go back to the Iran/Iraq war to see. We would have to "forgive" Iran for the Iranian hostage crisis; this would not be easy, but it could be done. If we can do business with Vietnam, then we can do business with Iran.
For its part, Iran would have to "forgive" America for supporting the Shah. Once again, this would not be easy.
This brings us to the second major issue: Israel. Israel has never invaded Iran either. Even though Amanpour's interviewee called Israel "my enemy," Iran has no historical reason to be enemies with Israel. In its brief existence, Israel's enemies have always been the Palestinians, the Arabs, the Sunnis, but not the Persians, not the Shia.
An American alliance with Iran would also require an alliance between Iran and Israel. This would not be easily accepted by EITHER Iran or Israel -- and just the thought of it would dumbfound al-Qaeda and the entire Arab community.
So this scenario seems very unlikely at first, but there's one more factor that makes it possible: There's Clash of Civilizations World War coming, and one component of this war will be Arabs versus Persians. Most Arabs will be on the side of al-Qaeda, against Israel. But they will not want Iran to become the dominant power in the region, so they'll be fighting against Iran, as well.
Iran is in a generational Awakening era, and is in no way desirous of another crisis war, being still traumatized by the Iran/Iraq war. But a crisis war is about to forced upon them, whether they like it or not, and one thing about crisis wars is that you have to choose sides. When Iran is forced to choose sides, they may well choose to ally with Israel. However, the larger consideration will be their alliance with Pakistan and China, so there are a lot of possibilities.
I apologize for the long, rambling nature of this article, but Iran
is much more confusing to analyze than other countries. There are
two reasons: Most countries today, 62 years after the end of World
War II, are in a generational crisis era, while Iran is in a
generational Awakening era, and Awakening eras are harder to evaluate
for predictions; and second, Iran is currently following a
contradictory policy, thanks to Mahmoud Ahmadinejad, and it's not
clear how the contradictions will resolve themselves.
(17-Mar-07)
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As the young generation of Palestinians become increasingly "lost and desperate," and the "most radical, the most accepting of violence and the most despairing," their leadership is moving ahead with a "unity government" that will only disillusion them even more.
A widely anticipated Sunday meeting between Palestinian president Mahmoud Abbas and Israeli prime minister Ehud Olmert ended up as being nothing more than a mutual exchange of unacceptable demands.
Abbas demanded that various roadblocks and guarded crossings in the West Bank be opened, to allow free travel. That's not going to happen because the Israelis are afraid (with justification) that freeing travel would permit more suicide bombings in Israel.
Olmert demanded that the new unity government recognize Israel and renounce violence. That's not going to happen because the Palestinians are afraid (with justification) would make a major concession to Israel with nothing in return.
The context is the aftermath of the signing of the Mecca peace agreement last month between Fatah and Hamas. This agreement, which included the first steps toward a unity government, appears to have succeeded in ending the Palestinians' civil war, at least for the time being.
The unity government has not yet been fully formed, but there is an upcoming Arab League summit meeting, planned for March 28. At that point, the Palestinians' new "unity government" will be represented at the meeting by delegates from both Hamas and Fatah. If the unity government does not recognize Israel or renounce violence -- which it almost certainly won't -- then Israel will not recognize it, and that will, I assume, trigger a major new political disagreement.
These machinations by old men from Hamas and Fatah are just the fumblings of dinosaurs from the point of view of the young, college-age generations of Palestinians. To these kids, many of whom own stashes of guns, missiles and ammunition for use against Israelis or other Palestinians, the Palestinians are wasting their time negotiating with Israel.
That's the conclusion of a New York Times survey of Palestinian youth, whom their parents call them "the lost generation of Palestine":
To hear these young people talk is to listen in on budding nihilism and a loss of hope."
The article emphasizes how dramatically things have changed since the 1980s and 1990s:
Israeli checkpoints, barriers and closures, installed to protect Israelis from Palestinian suicide bombers, have lowered these young people's horizons, shrunk their notion of Palestine and taken away virtually any informal interaction with outsiders, let alone with ordinary Israelis. The security measures have become even tighter since the election to power a year ago of the Islamist group Hamas, which preaches eternal "resistance" to Israeli occupation and rejects Israel's right to permanent existence on this land."
During most of the 1980s and '90s, as many as 150,000 Palestinians came into Israel daily to work, study and shop. While they were not treated as equals, many learned Hebrew and established relationships.
Now, the only Israelis whom Palestinians see are armed - soldiers and settlers. The West Bank is cut into three parts by checkpoints; Gazan men under 30 are virtually unable to leave their tiny, poor and overcrowded territory. Few talk of peace, only of a lifetime of "resistance."
It's tempting to believe that the young Palestinians' bitterness is CAUSED by Israeli actions, and that if Israel would only mend its ways, then young Palestinians would be happy.
But Generational Dynamics tells us that that isn't true. This kind of bitterness is caused by generational changes.
You can see it in London, where young Muslims have plenty of opportunities and no checkpoints preventing them from traveling. But a Muslim cell still blew up several London subway cars in July 2005.
Putting this into a larger generational framework, this is the kind of thing that happens in a civil war fault line situation, where two identity groups (differing by religion, ethnicity, color or language, for example) occupy the same physical land. After a crisis war, in this case the 1948-49 genocidal war between Arabs and Jews, there is often a period of mutual agreement, with the objective of never having such a horrible war again. In particular, if one of the groups is dominant, then it often guarantees that the less dominant group will always have adequate food, jobs, homes, and so forth. Once again, the objective is to prevent any such war from recurring.
As the decades go by, two things happen: First, both populations grow, to the extent that the dominant group has increasing difficulty meeting its guarantee of adquate of food, jobs and homes. And second, younger generations in both groups, with no personal memories of the horrors of the crisis war, develop increasingly negative attitudes towards the other group.
What Generational Dynamics shows is that once 3 or 4 generations pass since the last crisis war, the non-dominant group is going to feel the same bitterness towards the dominant group.
You may ask, "But what about cases where two groups have a civil war, and then they don't have another civil war 3 or 4 generations later. Doesn't that disprove what you're saying?"
That in fact does sometimes happen. The American Civil War is a good example. And it's worth remembering that the American civil war was not a war between blacks and whites; it was a war between Northern people and Southern people.
The key difference is not that there are different ethnic, racial or religious groups; the most important difference is whether social status is fixed at birth.
In America, and in other free capitalist countries, a couple will accept their own poverty if they believe that their children can break free and do well. (I'm ignoring Mexican immigrants in that statement.) But in the Mideast, or in countries like China, the Phillipines or Latin America, for example, your children will be just as poor as you are, with few exceptions.
What America has done, whether by genius or by luck, is to have created a true "melting pot," where birth does not limit your future.
Even the European countries have not succeeded as well as we have. European Muslims complain bitterly that they're confined to ghettoes, restricted to inferior jobs, and consigned to poverty -- simply because they were born Muslims. By contrast, there have never been any particular limitations on American Muslims, although that changed a little after the 1980s Iranian hostage crisis, and a bit more after 9/11.
But for Palestinian youth, there is no such freedom. Generational
Dynamics tells us that the Mideast is heading for a major new war
between Palestinians and Jews, and that nothing can be done to stop
it.
(14-Mar-07)
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This is the beginning of a flood. It's time to put your affairs in order. On Tuesday afternoon, Massachusetts issued subpoenas to UBS Securities LLC and Bear Stearns & Co. Inc.
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As I wrote yesterday, this is hardly a surprise. Analysts gave New Century Financial Corp. an upgraded rating, even as it was obvious that the market was collapsing and New Century's exposure was growing.
Appearing on CNBC on Tuesday afternoon, here's what Massachusetts Secretary of State William Galvin said:
These raise some very serious questions for us. We were very involved in the research analysts cases of 2003 and the global settlement - we were among the lead states. We thought we'd put thsese types of problems behind us. But this type of activity raises some very serious questions.
What relationships would cause such a grievous error. Were the relationships transparent? Were there other relationships between these two firms and New Century. Was there something else that was coloring these recommendations. Was their independent research relied upon, as there was supposed to be under the global settlement?"
The "global settlement" refers to the what happened after the Nasdaq crash in 2000. Leading up to that crash, analysts were giving glowing reports to stocks that were clearly overvalued, and the analysts were accused of having lied on their reports in order to aid the analyst firm in getting investment management business. In 2003, a "global settlement" was reached between several states and several analyst firms, in which the analyst firms insisted they had never done anything like that, and that they wouldn't do it again. Now they're being accused of doing it again.
Galvin was asked whether there was any additional evidence:
I don't know what the "reserves were combined" issue is. It should appear in Wednesday's papers.
Galvin was asked about the "most sinister interpretation":
We expect them to cooperate. We think that it's urgent that we move on this as rapidly as possible. The potential for contamination here is quite great. The impacts it's having on the marketplace is obvious. The impact on individual citizens certainly here in Massachusetts is significant. So for all these reasons, we want to move on as rapidly as possible. I think the relationships between the houses in this sector, the subprime sector, has to be vigorously reviewed."
There's no doubt that these crimes occurred. The craziness and stupidity of investors, analysts and journalists alike can't be explained any other way. The global investment industries have turned into a worldwide pyramid scheme (or Ponzi scheme), and there will be plenty of opportunity for investigations into criminal activity.
The Massachusetts investigation is only the beginning of what is going to be a huge flood of investigations.
The criminal investigations will extend to anyone who violated a professional or fiduciary duty in making an investment recommendation that turns out, in retrospect, to have been wrong. Other obvious things, such as misuse of money, will also be prosecuted.
It may seem unfair to hold analysts to their opinions retrospectively, but no one can be convicted without evidence. One of the biggest sources of evidence will be answers to this question: Did the professional follow his own advice, and suffer along with his clients, or did the professional save himself at the expense of his clients.
Here are some examples of people who will be targets of investigation:
If you fit in any of the above categories, or any other category where you gave questionable advice for pay, or misued money for personal gain, then you should take action immediately.
Decide that it's time to cut your losses. You are going to go bankrupt, no matter what you do. You're going to lose your home, no matter what you do.
Do you want to be a criminal as well?
You should see a lawyer right away and determine what your options are. In some cases, admitting your crime or changing your ways now may save you.
Incidentally, it's perfectly OK to call a lawyer's office and ask to have an initial consultation for no charge. You can then tell the lawyer your story and get some advice. If the lawyer continues representing you, then of course you'll have to pay him.
Whatever you do, do NOT NOT NOT admit any crimes to family or friends, other than lawyers. This is VERY IMPORTANT. Don't tell someone, "I feel very guilty; I took some money from an escrow account and I can't pay it back. I don't know what to do. Sob."
If you do that, then, in many cases, your friend has an obligation to report your crime. If he does not, he will become an accessory after the fact, and may also go to jail. So do NOT put your friends' future in jeopardy by confessing to them.
And it goes without saying that you should NOT send me an e-mail
message confessing to a crime. I'm not a lawyer, so I couldn't help
you anyway. Go talk to a lawyer. At least it will give you some
peace of mind.
(13-Mar-07)
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Analysts with rosy predictions are getting closer to jail.
New Century Financial Corp., the nation's second-biggest subprime lender (behind first place Countrywide Financial Corp.), said on Monday that it's defaulting on loans to lenders, and can't make the required payments.
For an ordinary person, this would mean personal bankruptcy. For New Century, it may well bankruptcy as well. However, keep in mind that old saying, "If you owe the bank $10,000 and can't pay it, then you're in trouble; if you owe the bank $10,000,000 and can't pay it, then the bank's in trouble."
In New Century's case, the "banks" include Morgan Stanley, Citigroup Inc. and Goldman Sachs Group Inc. They may get together and come up with a plan to keep New Century in business, or they may divide up New Century's assets. We should know by the end of the week.
Monday's New York Times has an article making the intriguing comparison between the current mortgage loan situation and technology stocks in the hi-tech bubble that ended in 2000:
What happened next seems all too familiar to investors who bought technology stocks in 2000 at the breathless urging of Wall Street analysts. Last week, New Century said it would stop making loans and needed emergency financing to survive. The stock collapsed to $3.21.
The analyst’s untimely call, coupled with a failure among other Wall Street institutions to identify problems in the home mortgage market, isn’t the only familiar ring to investors who watched the technology stock bubble burst precisely seven years ago.
Now, as then, Wall Street firms and entrepreneurs made fortunes issuing questionable securities, in this case pools of home loans taken out by risky borrowers. Now, as then, bullish stock and credit analysts for some of those same Wall Street firms, which profited in the underwriting and rating of those investments, lulled investors with upbeat pronouncements even as loan defaults ballooned. Now, as then, regulators stood by as the mania churned, fed by lax standards and anything-goes lending."
The implication is clear that the analysts who wrote these recent "upbeat reports" are going to be in serious trouble. More and more, we're seeing articles on "predatory lending" that blames the lending institutions themselves. But we're also seeing articles directed at other people, such as investors who collude with builders by purchasing a home at inflated prices, obtain a mortgage fraudently, and then split the proceeds with the builder.
But we've also seen an increase in articles that target analysts and economists. The most visibly ridiculed among these people is David Lereah, the chief economist at the National Association of Realtors, who predicts a housing upturn no matter what the data says. As an aside, recent press reports indicate that the spring, which is normally the best home selling season of the year, has been extremely disappointing for the real estate market analysts. It will be interesting to see if Lereah and others finally change their tunes.
However, the NY Times article quoted above hints that a much wider range of analysts are going to be investigated and targeted by prosecutors.
The article says that "bullish stock and credit analysts for some of those same Wall Street firms, which profited in the underwriting and rating of those investments, lulled investors with upbeat pronouncements even as loan defaults ballooned." In other words, these analysts published upbeat reports so that their own firms would make more money. This has implications of civil or criminal fraud.
However, government employees will be targeted as well: "Now, as then, regulators stood by as the mania churned, fed by lax standards and anything-goes lending."
So we have several groups of people -- lending institutions, analysts, regulators, investors -- all of whom are going to be investigated for criminal practices. And each of these groups will be saying, "It's not my fault -- it's the other groups' fault."
I've quoted this passage before, but it's worth repeating. John Kenneth Galbraith described what will happen in his 1954 book, The Great Crash - 1929, as follows:
Just as the boom accelerated the rate of growth, so the crash enormously advanced the rate of discovery. Within a few days, something close to universal trust turned into something akin to universal suspicion. Audits were ordered. Strained or preoccupied behavior was noticed. Most important, the collapse in stock values made irredeemable the position of the employee who had embezzled to play the market. He now confessed. ...
Each week during the autumn more such unfortunates were reveled in their misery. Most of them were small men who had taken a flier in the market and then become more deeply involved. Later they had more impressive companions. It was the crash, and the subsequent ruthless contraction of values which, in the end, exposed the speculation by [financial firms] with the money of other people. Should the American economy ever achieve permanent full employment and prosperity, firms should look well to their auditors. One of the uses of depression is the exposure of what auditors fail to find. Bagehot once observed: "Every great crisis reveals the excessive speculations of many houses which no one before suspected."" [pp. 133-35]
Galbraith's point was that there were many criminal activities going on before the 1929 crash, but nobody cared, as long as everyone was making money. But once the crash occurred, any irregularity was viewed with suspicion and led to an investigation. These investigations turned up many cases of embezzlement -- people who had "temporarily borrowed" money that wasn't theirs to invest in the stock market, and then got caught in the crash.
By the way, this may be an additional reason why investors keep enlarging a bubble after it's increasingly clear that the bubble will be bursting. As I explained in my previous article, about how increased investor risk aversion leads, strangely enough, to higher stock prices. This is caused by the increased availability of money and a belief by the investor that he can get out of the market in time to avoid getting caught.
However, Galbraith's point about embezzlement provides additional reasoning: As credit becomes more and more available just before a crash, more and more people get over their heads in debt. Thus, investing in the stock market becomes an act of desperation, because the investor has to make enough money, before the bubble bursts, to pay off his creditors. Thus, "temporary" embezzlement becomes a tempting expediency. The investor may even reason, "Well, I'm already looking at bankruptcy and homelessness, so I really have nothing to lose by embezzling money."
So we can assume that there's lots and lots of embezzlement going on today. Perhaps you, dear reader, have embezzled some money in the hopes of escaping a desperate situation; or, if not you, perhaps the person sitting at the desk next to you. What history has shown is that it's a lot more common than people think, especially in these times of huge bubbles about to burst. Basically, normally honest people are so far in over their heads, that they believe that they've already lost everything and have nothing more to lose. These crimes are mostly not being investigated yet, but the level of investigations is going to increase, with absolute certainty.
And what does the public think of the analysts, investment firms, and regulators who allowed all this to happen?
Think back to 2000, when the Enron scandal began. At that time, much of the public wanted to see every corporate CEO, even the ones who had been honest, go to jail.
Or, better yet, think back to my own favorite example, the bankruptcy of the French Monarchy in 1789 that led to the French Revolution. In the Reign of Terror that followed, any person who was an aristocrat, a relative of an aristocrat, a friend of an aristocrat, a servant of an aristocrat, or even had a resemblance to an aristocrat, would be tried and quickly convicted and sentenced to the guillotine.
As I've said before, if you're an economics expert, journalist,
investment broker, mortgage lender, analyst, regulator, pundit or
politician whom the public decides is blameworthy for the major
coming crisis, then I suggest that you'd better have your underground
bunker picked out, because people are going to be coming after you,
and the guillotine is going to seem mild compared to the punishment
that they're going to want to inflict on you.
(12-Mar-07)
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Maybe because the global financial markets are increasingly "accident-prone."
As one pundit after another explains why the markets are in wonderful shape, and why last week's fracas was a momentary blip, and why the markets are poised to reach new high after new high, with no end in sight, it's always interesting to listen to the one or two mainstream pundits who are saying something different.
Michael Metz, chief investment strategist at financial investment firm Oppenheimer & Co., was Friday's token "bear" at CNBC. Here's what he said:
It's going to result in some sort of accident - we've had one accident already. How serious an accident the next one is I don't know, but it's an accident prone system."
He's saying what should by now be completely obvious to regular readers of this web site -- with bubbles pushed to all-time highs around the world, thanks to massive amounts of private debt (not to mention public debt), all it takes is some kind of "accident" to bring things down. It's an interesting way of putting it.
But here's a strange question: Why have these bubbles continued to get bigger and bigger? As we've said, investors have been getting increasingly risk averse. So why are they investing in larger and larger bubbles? Why has the stock market has continued to go up for several years now?
A partial answer is given an interesting piece by Morgan Stanley economist David Miles, The piece is entitled, "What Happens When We All Get More Pessimistic and Think There Is More Risk?," and it's an attempt to analyze how the increasing risk aversion of investors is going to affect the marketplace.
Warning: The reasoning is complicated and even mind-boggling, but I'm going to go through it here step by step for two reasons: So that I can understand it better, and so that readers who are interested in macroeconomics can understand it better. Those interested in further information about integrating generational dynamics concepts into mainstream macroeconomics should read my October article, "System Dynamics and the Failure of Macroeconomics Theory."
Miles starts by reminding us that "Equities have fallen quite a lot pretty much everywhere across the world," and says, "The reason? Overwhelmingly the favourite answer is: a combination of a bit more pessimism about economic fundamentals and a lot more worrying about risk."
But he points out that it's a lot more complicated than that.
This is the obvious reasoning that people have been using. If I'm pessimistic about the economy, then I believe that corporate earnings are going to be lower. If I think that the corporate earnings are going to be lower, then I'm not willing to pay as much for that company's stock, and if I believe that for the economy as a whole, then the entire stock market goes down.
Now this is a lot more subtle, and requires a more lengthy explanation.
You may recall that early in 2005, Fed Chairman Alan Greenspan identified a "conundrum": Long-term interest rates around the world were lower than short-term interest rates. Why were long-term interest rates so low? That was the conundrum.
It turns out that economists started working to figure out an answer to Greenspan's conundrum, and they came up with an answer late in 2005 -- a controversial answer, as we'll see.
Now, Miles refers to the "safe real rate of return," which he defines that as the rate of return (interest rate) on investments in "inflation-proof government bonds." These interest rates are very strange these days, because the yields (interest rates) are inverted.
In "normal" times, long-term bonds pay higher yields than short-term bonds, but just the opposite is true today. So, the Fed overnight rate today is 5.25%, but a 3-month Treasury bond pays 4.92%, and a 10-year Treasury bond pays 4.57%. This is the conundrum -- in "normal" times, longer investment periods carry higher risks, so interest rates should be higher, not lower. In fact, all of these rates should be above the Fed Funds rate of 5.25%.
So why are they lower? That's the point: When investor risk-aversion increases, "We get a fall in the safe real rate of return ..." In other words, the interest rates on bonds falls -- in today's world, very, very sharply.
Explanation: When investors become risk averse, then they move their money into safe investments (government bonds). This increases the demand for government bonds, which means that their purchase price goes up (law of supply and demand), which means that their yield (interest rate) goes down. The higher the price of a bond, the lower the yield. [Suppose a bond pays $1000 ten years from now. If you buy it for $100 then you'll get a higher annual rate of interest than if you buy it for $90 -- the higher the price, the lower the yield.]
This is the mind-blowing step, the one that you may have to sleep on, as I did.
If the "safe real rate of return" goes down, that means that if you want to make an investment that pays decent rate of interest, then you have to invest in something "non-safe," or rather, less safe. This is the way it works in "normal" times, too: Safe investments pay lower interest rates than non-safe investments.
So you have investors who want a decent return on investment to purchase stocks instead of safe bonds that pay little or no interest.
We have the answer empirically: Stock prices go up, and so Principle #2 is the dominant one. We can see that today, just by noticing that the stock market keeps going up.
So why is Principle #2 the dominant one? For this, Miles refers to a 2005 paper by Robert J. Barro, a Harvard economist, called "Rare Events and the Equity Premium."
By "rare event," Barro means things like World War I and II and the Great Depression. Barro builds a macroeconomic model that takes into account investors belief that there may be a "rare event" coming.
Barro quantifies this by identifying two values for a given set of conditions: The risk-free interest rate (the yield that government bonds pay) and the "spread." The spread is the additional effective yield (interest rate) that an investor can expect to earn by investing in "risky" stocks rather than risk-free bonds.
If p=.01 (i.e., p=1.0%) is the probability of a disastrous event in the next year, then the risk-free interest rate is 2.3%, and the spread is 3.6%, and so the expected yield from "risky" investments is (2.3%+3.6%) = 5.9%.
The following table lists the values of interest when the perceived probability of a "rare event" goes from p=0=0% to p=0.015=1.5%:
| Perceived probability | risk-free | | "risky" |
| of "rare event" | rate | spread | rate |
| --------------------- | --------- | ------ | ------- |
| p = 0.0% | 9.3% | 0.1% | 9.4% |
| p = 0.5% | 5.8% | 1.9% | 7.7% |
| p = 1.0% | 2.3% | 3.6% | 5.9% |
| p = 1.5% | -1.2% | 5.4% | 4.2% |
Note: Column 4 = the sum of columns 2 and 3.
As you can see from this table, when there is no perceived danger of a "rare event," the spread is close to 0, which means that there is little difference between investing in risk-free and risky investments.
As an aside, a near-zero spread is the predicted result of macroeconomic models that don't account for rare events. That's Alan Greenspan's "conundrum," and why this situation has puzzled economists at least since the 1970s. No one could account for the fact that in the "real world," the spread was nowhere near 0, when the models predicted it should be close to zero.
As the table above shows, when the probability of a "rare event" increases from 0% to 0.5%, 1.0% and then to 1.5%, the risk-free rate falls, even going negative, and the spread increases. Thus, the more fearful people are of a stock market crash, the more likely they are to invest in stocks.
Huh? Did I really just type that? That's the conclusion of Barro's model, and it's also supported by the data he collected from 20 countries over the last century.
It's also what's happening today. Many people have been getting more concerned about a stock market crash, and yet the stock market keeps going up, and "risk-free" bond yields stay comparatively much lower.
We'll have a lot more to say about this conclusion below.
Miles is making the point that Barro's model doesn't explain what happened in the last two weeks: Why did the stock fall, instead of continuing to go up?
That, of course, has a generational explanation, which we'll get to below.
From the point of view of Generational Dynamics, Barro's article is very important because it comes very close to recognizing generational theory.
Of course, it doesn't mention anything generational, but once you start talking about and analyzing "rare events," then the next step is to wonder how often "rare events" really occur, and from there, the only answer is generational theory.
I've said many times on this web site that pundits, analysts and economists seem congenitally unable to recognize generational effects, even the most obvious ones. Barro mentions in his paper that the "rare event" theory that he's developing, based on work done by T.A. Rietz in the 1980s, has received a very unenthusiastic reception from other economists. That's exactly the same as the unenthusiastic reception that Generational Dynamics gets.
Barro's paper could potentially be important to Generational Dynamics for other reasons. It provides a model for today's stock market debauchery, and this model could be enhanced with generational concepts to become a very powerful explanation of what's going on in the world today.
The following notes show how generational theory should be incorporated into Barro's work. Some of these notes are corrections, but most of them indicate improvements, including answers to questions that Barro himself asks.
And there's a contradiction: In order for bond prices to go up, you need people to be moving their money from stocks to bonds (for increased safety). In order for stock prices to go up, you need people to be moving their money from bonds to stocks (for increased return). So you need people to be moving in both directions simultaneously, which is impossible.
However, it becomes possible when you realize it isn't that people have to move in both directions. What's needed is a lot more money in the system, buying BOTH stocks and bonds. In order for bond and stock prices to go up, you need demand for BOTH to increase, which means you need more money in the system.
When is there more money in the system? Well, the drop in bond prices automatically means that there's more money in the system, because the fall in bond prices means an increase in the supply of bonds from the Fed.
But more important, you need more liquidity in the system through credit -- through higher margin or other credit mechanisms.
So, for example, people bought those "tulip futures" in the 1630s for the Tulipomania bubble. A tulip future was a certificate that you bought in the fall. It gave you ownership to a particular tulip that would be grown in the spring. People must have borrowed money to purchase these certificates, secure in the "knowledge" that they'd end up making money, because the tulip would be even more valuable, which it was, until the bubble burst. But before that, the circulation of borrowed money would have increased liquidity, lowering interest rates.
Use of credit has to be added to Barro's model for it to make sense. Also, use of credit is a generational variable, since the willingness to use credit varies by generation, based on whether or not the generation lived through the previous "rare event" debt bubble crash.
This is a mistake because you need credit to resolve the contradiction just described above.
Furthermore, a moment's thought reveals that the use of credit is intuitively crucial to Barro's model.
The model is based on the "perception" of the probability of a rare event such as a stock market crash. What would cause investors to increase that probability? Obviously widespread use of credit would do it.
Barro's results may make sense with leverage values at 20% or 40%, but we're way beyond that today.
The hedge fund industry is a worldwide pyramid scheme (or Ponzi scheme), and many investors realize this, even if they won't say so out loud. And today's leverage amounts in the hedge fund industry are way above 40% -- well above 100% and probably over 1000%.
In fact, there's no obvious way to find out whether the "p=1.0%" probability figure makes sense, or whether the value should be should be measured in some way. It may turn out that the best way to measure it is by means of the use of credit, and of course the willingness to use credit is clearly a generational variable.
As far as I know, there are only two long-term cycles in economic data: The generational cycle (70-80 years) and the Kondratiev cycle (40-50 years), which appears to be technology related. These two cycles are completely independent of one another; sometimes they reinforce each other, and sometimes they cancel each other out. Today they're reinforcing each other.
Beyond that, the only cycles are short-term. In the US, there is a four-year cycle synchronized with the US Presidential elections.
Every researcher I've seen on these subjects makes the same damn mistake -- they add together all economic data without separating out the independent series. Without separating out the the different series, the results are gibberish. If Barro recomputes his results and separates the independent series, then I believe that he'll get very significant results.
Here's how Barro explains it:
(Recall that "a rise in p" means that the perceived probability that stock market crash will occur is rising.)
Barro's explanation isn't very satisfying. In the face of increased belief that a stock market crash is coming, why would "households [also be] motivated to hold more assets overall because of greater uncertainty about the future"? That doesn't make sense to me.
In fact, this is another apparent contradiction: Once the stock prices have gone up, if you're expecting a crash, then why wouldn't you sell your stocks at that point? The answer, of course, is that you expect them to keep going up. If you're in a bubble, then you expect the bubble to keep expanding.
This is a subject that I keep railing about on this web site. I keep expressing shock and surprise that investors are so stupid as to keep investing in a bubble. Don't they know they're going to lose everything in a crash -- a crash that they expect?
Well, Barro's model tells us that what is happening today is what we should expect. The giddy craziness of today's global financial system is exactly what we should expect. But why?
The only way to make sense of this is to incorporate a generational view of the willingness to use credit. In the decades immediately after a crash, a society's use of credit is very limited, because of fear of another crash; but as the survivors of the last crash retire or die, the use of credit increases.
Now, as we said a few paragraphs ago, it may be that the best way to measure the value of p (the perceived probability of a stock market crash) is through the use of credit; as society uses more and more credit, resulting in bigger and bigger bubbles, there's a two-way pull on investors:
This is another example of a "push-pull" kind of thing that can be modeled, once the generational cycles are sorted out and put into the model. It should then be possible to show that the second of these two factors dominates the first one.
There's only one more thing that has to be added: People stay in the market, even though they fear a crash, because they believe that they can see the crash coming and get out in time.
In fact, here's a twist: You may wonder, as I have, why investors didn't learn from the Nasdaq crash in 2000. The answer is, I believe that they're kicking themselves because they should have seen what's coming and didn't get out in time, and having lived through that crash, they think that they know how to beat the next one.
His suggestion of using "stochastic variations" means that random values of p would be chosen in the model, as it moves forward through time. This is the usual naïve technique, used by someone with no concept of generational cycles (which means just about everybody).
The most effective model would be one that shows p having a low value shortly after after a stock market crash, and then rising gradually through the entire 80-year period. Furthermore, the value of p should be correlated with the use of credit (or leverage).
Barro says that "I am skeptical that this probability varied over time in the way suggested by Mehra and Prescott," and indeed he should be. There is absolutely no way that the "perceived probability of a depression was ... high just after World War II."
At that time, the survivors of the Great Depression knew exactly why it had occurred: It was caused by the evil of buying stocks on margin, or using credit. And after World War II, almost no one used credit. Anyone who understood the use of credit would not have expected a recurrence of the depression.
He's correlating values of p to economic expansion and contraction, but he admits it's only guesswork. In fact, one could just as easily argue the opposite: When the stock market rises, someone might expect a crash, but when the stock market begins to fall again, someone might think that the danger is past.
In fact, I believe that, in the end, it will turn out that p increases almost monotonically in the 70-90 year period from one crash to the next, and then falls sharply when the crash occurs, beginning the cycle all over again.
All this may seem largely academic and of little value to practical people who have to make money in financial markets. It may remind some of the old joke made at the expense of the head-in-the-clouds academic who on seeing some real world phenomenon observed that it was all very well in practice but it shouldn't work in theory.
On the other hand, we might just stop and wonder a bit whether what appears to be a nice logical "explanation" for falls in stock prices --- like "people got worried about risk and more pessimistic about growth" --- really does explain very much at all about what just happened."
As Miles points out, Barro's theory explains why stock prices keep rises, but it doesn't explain why the recent falls occurred, or why crashes occur at all.
The answer to that is simply that, sooner or later, the bubble has to burst.
Barro's theory, when generational theory is added, is really quite a remarkable explanation of why a bubble occurs in the first place. The fear of a "rare event" (stock market crash) is more than offset by the availability of credit that pulls investors into a larger bubble.
There certainly are people today who recognize the danger. At the beginning of this article, we quoted Oppenheimer's Michael Metz as saying that he's expecting "some sort of accident" in what is "an accident prone system."
In an article I posted last week, I quoted Douglas A. Kass of Seabreeze Partners Management as saying, "I think that there's a very good chance that the market, rather than test its low, crashes in the next several months."
What happened in the last couple of weeks is that the "perceived probability of a rare event" has really begun to catch up with investors.
Many investors believe (or, at least, fear) that a crash is coming, and must also believe that they're going to be especially clever and get out in time, because they'll see in advance all the signs that they didn't bother to see during the Nasdaq crash in 2000. Thus, when there's some kind of scare (caused by a chaotic, unpredictable event), all of these investors immediately believe that they've seen the sign, and they want to get out right away.
Well, of course, when a real crash happens, the huge numbers of sell orders will swamp all the computer systems of all the banks, investment houses, and exchanges, so that few people will actually get out in time. The rest will lose pretty much every penny they own, and most will be left with a mortgage debt and credit card debts they can't pay. Since many companies will go out of business, many people will become unemployed, bankrupt, and homeless. The ones who owe child support will all be sent to jail for failure to pay. Others will simply be dumped on the street to live under bridges and in cardboard boxes.
Those are the missing pieces that David Miles was looking for. Barro's theory explains what happens up to the point of the crash, and then full-scale panic explains the crash itself.
From the point of view of Generational Dynamics, Barro's paper presents an exciting theory that integrates very well with the rest of Generational Dynamics, and explains a great deal.
Those interested in further information about integrating
generational concepts into mainstream macroeconomics should read my
October article, "System Dynamics and the Failure of Macroeconomics Theory."
(12-Mar-07)
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Plan on spending time on Sunday, and again in three weeks, dealing with this.
Congress has been pretty incompetent for several years, ever since the Boomers took over, and the little that they accomplish is based on sheer ignorance of any actual facts.
No other description could possibly apply to the "The Energy Policy Act of 2005," which moved up the date of Daylight Savings Time in the U.S. by three weeks, starting this weekend.
I shuddered when I first heard about this in 2005 because I couldn't believe that even Congress could be that stupid, but never underestimate the stupidity of Congress.
Today is the day we'll have to pay. Here are some of the consequences:
So have fun, folks.
All these devices were designed so that consumers wouldn't have to remember to make all these changes, and wouldn't have to figure out how to adjust all of them. That's how progress is supposed to work -- we have engineers design these high-tech devices to work properly. For the last ten years or so, devices containing clocks have been properly adjusting for DST. So Congress has just set technology back ten years.
I have an anecdote related to this issue.
Back in the 1970s, I was in a group of programmers developing IBM's mainframe operating system VM/CMS. Clyde, a friend of mine on the team was responsible for writing all the timing algorithms.
Well, he was furious at the government because of "leap seconds." Now, a leap second is a one second adjustment that NIST makes every now and then to account for tiny irregularities in the earth's orbit.
The first leap second was added on June 30, 1972. There have been a total of 23 leap seconds added, most recently on December 31, 2005. (Remember how that New Year's Eve party seemed longer than usual? That's because you had to wait an extra second for the new year!)
Well, Clyde was angry because there's no way to predict when the next leap second will occur, and so there was no way to program the operating system in advance to handle them properly. If you're writing a computer operating system that might have to schedule things far in advance, and schedule them to the precise second, then leap seconds matter very much.
I don't remember how Clyde resolved the leap second problem, but there's a big difference between that problem and the DST change: The leap second was implemented by international agreement, while the DST change was mandated by Congress in 2005.
Congress has created a big mess, one of many. Get your fingers warmed up to re-set the correct time on all these devices, because you're going to have to spend a lot of time doing it.
And if you're looking for someone to blame, then blame the Boomers.
But don't blame me, even though I'm a Boomer, because I'm as furious
as anyone about it.
(10-Mar-07)
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Unfortunately few in Congress know what he's talking about.
In a half-hour address to a joint session of Congress on Wednesday, Jordan's King Abdullah II exhorted America to help bring peace to the Israelis and Palestinians. Here are some excerpts:
|
I come to you today at a rare, and indeed historic, moment of opportunity, when there is a new international will to end the catastrophe. And I believe that America , with its enduring values, its moral responsibility, and yes, its unprecedented power, must play the central role. ...
The status quo is also pulling the region and the world towards greater danger. As public confidence in the peace process has dropped, the cycle of crises is spinning faster, and with greater potential for destruction. Changing military doctrine and weaponry pose new dangers. Increasing numbers of external actors are intervening with their own strategic agendas, raising new dangers of proliferation and crisis. These are groups that seek even more division: faith against faith, nation against nation, community against community. Any further erosion in the situation would be serious for the future of moderation and coexistence, in the region and beyond. Have we all lost the will to live together in peace celebrating one another’s strengths and differences? ...
Some will say: ‘This is not the core issue in the Middle East.' I come here today as your friend to tell you that this is the core issue. And this core issue is not only producing severe consequences for our region, it is producing severe consequences for our world.
The security of all nations and the stability of our global economy are directly affected by the Middle East conflict. Across oceans, the conflict has estranged societies that should be friends. I meet Muslims thousands of miles away who have a deep, personal response to the suffering of the Palestinian people. They want to know how it is, that ordinary Palestinians are still without rights and without a country. They ask whether the West really means what it says about equality and respect and universal justice.
Yes, my friends, today I must speak. I cannot be silent.
Sixty years of Palestinian dispossession, forty years under occupation, a stop-and-go peace process, all this has left a bitter legacy of disappointment and despair, on all sides. It is time to create a new and different legacy, one that begins right now; one that can set a positive tone for the American and Middle East relationship; one that can restore hope to our region’s people, to your people, and to the people of this precious world. Nothing can achieve that more effectively, nothing can assert America’s moral vision more clearly, nothing can reach and teach the world’s youth more directly, than your leadership in a peace process that delivers results not next year, not in five years, but this year. ...
But we need all hands on deck. The international community, especially the United States , must be engaged in moving the process forward to achieve real results. Above all, we must make our process serve our purpose. We must achieve an agreed solution to the conflict. ...
Your responsibility today is paramount. Your potential to help Palestinians and Israelis find peace is unrivalled. This is because the people of the region still regard the United States as the key to peace, the one country most capable of bringing the two sides closer together, holding them accountable, and making a just settlement reality. ...
We look to you to play an historic role. Eleven American presidents and thirty American congresses have already faced this ongoing crisis. For not the future generation, but the generation alive today, let us say together: No more! Let us say together: Let’s solve this! Let us say together: Yes, we will achieve this! ...
The next time a Jordanian, a Palestinian, or an Israeli comes before you, let it be to say: Thank you for helping peace become a reality."
This was a desperate plea by King Abdullah.
The May, 2003, Generational Dynamics prediction was that Yasser Arafat's disappearance would be part of a generational change that would lead the Mideast into a massive new crisis war (between Jews and Arabs), re-fighting the bloodbath war in 1948-49 following the partitioning of Palestine and the creation of the state of Israel. In fact, hardly a day has gone by since Arafat's death that the chaos in the Mideast has gotten worse than it was the previous day, and at this point almost anyone can see that it's headed for a major war.
King Abdullah sees it best of all because he lives in the middle of it. He sees what's going on, and understands its significance.
So when he says, "The status quo is also pulling the region and the world towards greater danger. As public confidence in the peace process has dropped, the cycle of crises is spinning faster, and with greater potential for destruction," he means exactly that.
Unfortunately, he's talking to an audience of morons who have no idea what's going anywhere in the world outside their own bedrooms.
I've pointed this out many times, especially when ABC's George Stephanopoulos looked like an idiot in November because Jordan's King Abdullah had to tell him five times of the importance of the Israeli/Palestine situation, but he was still clueless.
The clincher was when Jeff Stein, national security editor for Congressional Quarterly, wrote an article about how he'd inverviewed Silvestre Reyes, whom Nancy Pelosi had selected to be chairman of the House Intelligence Committee, and Reyes didn't even know whether al-Qaeda was a Sunni or Shia organization. And this isn't a political thing: Stein found the same level of ignorance across parties, even among analysts who were supposedly experts on the subject they couldn't answer questions about. And if you don't know that al-Qaeda is a Sunni organization, then you cannot possibly know anything about what's going on in Iraq. It's impossible. And Reyes has been on the House Intelligence Committee for five years, since 9/11. And yet, members of Congress go on television and spout ridiculous proposals about Iraq based on little or no knowledge at all.
So it's pretty safe to assume that few members of Congress had any idea what King Abdullah was talking about. In fact I'd bet that few members of Congress even bothered to attend.
The same is true of journalists. Here's a paragraph from the Reuters coverage of the speech:
This is the Reuters interpretation of the speech - it's simply political, nothing else. There's no discussion of whether Abdullah was right or wrong. They simply assume that he's wrong, but he's making a political play. Judging from the coverage I've heard elsewhere, all the journalists assumed that.
I was thinking, I've mentioned the 1947 "Truman Doctrine" in an article or two. This was a speech given to Congress. It contained phrases like, "As in the case of Greece, if Turkey is to have the assistance it needs," and "intimidation in violation of the Yalta agreement in Poland, Rumania, and Bulgaria."
You know, a speech like that couldn't be given to Congress today, because they wouldn't understand it. Places like Greece, Turkey, Poland, Rumania and Bulgaria are just names to people in Congress today; I doubt that many of them could find these countries on a map if they had to.
As the great satirist Ambrose Bierce said, "War is God's way of teaching Americans geography." Since we're having a war in Iraq, most Congressmen could probably find Iraq on a map, but that's it.
Anyway, getting back to Abdullah's speech, it sounded desperate, didn't it? He sees the danger -- that the Mideast is descending into a chaos that will affect the world. And he's asking America to solve the problem. But how? He doesn't say. He has no idea. He's just like every one of the American Boomers, who expect their parents to take care of everything for them. He has no idea how to fix the problem himself, or how American fix the problem, but he just wants it done, like a child who cries and asks his parents, "Please cure my poison ivy."
As I've pointed out many times on this web site, the Gaza strip is densely populated and the median age in the Gaza strip is 15.8. Thus, the Gaza strip is run by a generation of children with guns and missiles.
It doesn't matter what America does or what President Bush or what King Abdullah does. The fate of the Mideast is not in the hands of the leadership of Israel, nor either the Fatah or Hamas leadership of the Palestinians. None of them matters much. The fate of the Mideast is in the hands of a generation of children with guns and missiles, children who couldn't care less about the nuances of international diplomacy. At some point they'll decide that there'll be war, and then there'll be war.
It's amazing to me that nobody seems to understand this. I've often said here that politicians, pundits, high-priced analysts and journalists can't recognize any generational concept, no matter how obvious. It's just too abstract for them to understand.
And this situation is certainly pretty obvious to anyone who understands what the phrase "median age" means.
Apparently the people at the BBC don't have any idea. I recently stumbled across the BBC's Gaza Strip Profile. The profile describes the difficult life on the Gaza strip, and spends many paragraphs talking about the population.
But does the BBC mention that the median age is 15.8, and draw any conclusions from that? No, that concept is too abstract for the writers at the BBC to understand.
The only paragraph that even gives a hint of the ages of the people in the Gaza Strip is this one:
Wow! That means, ummmmmmmm, that the majority of the Gaza residents are, ummmmmmmmmmmmmmmm, over 58 years old. Gee, I wonder how you get a median age of 15.8 out of that?
But that's what I mean. The BBC reporters, some of whom work right in the Gaza Strip, are unable to see even the most obvious and simple generational reality. They're too tied up with their bigotry and biases to see anything that simple. Here's an article by Reuters that contains the same stupid error.
In fact, the only article I've seen that even recognizes this situation was the one in the Boston Globe in December that actually contains interviews with young Gazans.
One 20-year-old said, "For 12 years we have been in peace negotiations, we have given up many things, but achieved nothing. We don't believe in a political solution, because Israel will never respect it. So we are forced to seek a military solution, even though Israel is stronger. There will be no peace in the Palestinian territories."
Another was more succinct: "The Jews will not leave the land unless they are killed."
From the point of view of Generational Dynamics, what's coming is pretty obvious. King Abdullah can see it plainly. The people who can't see it are the journalists and the politicians. The fate of the Mideast is in the hands of the young Palestinians and their young Israeli counterparts. As these younger generations grow in size, the Mideast edges closer to all-out war, which is what we've been seeing for over two years now.
Abdullah said that the Mideast "is pulling the region and the world
towards greater danger. As public confidence in the peace process has
dropped, the cycle of crises is spinning faster, and with greater
potential for destruction." Abdullah's prediction is coming closer
to fruition every day. The one thing he's wrong about is his belief
that there's any possible way to stop it from happening.
(8-Mar-07)
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Meanwhile, countries throughout region are increasingly anxious as China makes major new military announcements.
 |
China announced a major 17.8% increase in its military budget for 2007 in conjunction with the annual National People's Congress meeting in Beijing.
India expressed concern about the increase, the largest in almost ten years, not only because of the danger from China itself, but also because of China's military partnerships with Pakistan and other countries around India -- Myanmar, Sri Lanka, Bangladesh, Maldives, Seychelles and the like.
Taiwan's Foreign Ministry said that the increase will affect regional stability and peace, and demanded a credible explanation.
An editorial in a leading Taiwanese newspaper put it this way:
This is the real cause for concern.
China's military expansion is clearly not of a defensive nature, and Taiwan is planted firmly in its crosshairs. China already has more than 900 missiles aimed at Taiwan along its eastern seaboard and has established a legal pretext for using them -- along with other types of military force -- by passing the "Anti-Secession" Law in 2005."
The last sentence refers to the China's 2005 "Anti-secession law," which provoked massive anti-Chinese riots in Taiwan at that time.
The editorial continued:
Indeed, Japan IS very worried. In the past, Japan has called China a considerable military threat. And in January, Japan expressed great concern when China successfully tested an anti-satellite weapon
Japan and China in confrontation over comfort women:
Meanwhile, countries throughout region are increasingly anxious as China makes major new military announcements....
(7-Mar-07)
China's Foreign Minister replies to "China threat" to US and Japan:
And China changes the official transcript to hide what he really said....
(1-Mar-07)
Japan's real estate crash may finally end after 16 years:
To see where America is going, look what happened in Japan....
(20-Feb-07)
Japan comes closer to renouncing its postwar pacifism:
Japan stirs fears of increased militarism by upgrading its Defense Agency...
(18-Dec-06)
New Japanese Prime Minister Shinzo Abe represents "hawkish" generational change:
He's sure to infuriate the Chinese and Koreans....
(27-Sep-06)
In an Independence Day surprise, North Korea launches multiple test missiles towards Japan:
Sticking its thumb in the eye of the United Nations and the United States,...
(4-Jul-06)
Japanese minister calls Chinese a considerable military threat:
Relations between China and Japan continue to increase in anger and hostility,...
(22-Dec-05)
Japanese and Chinese relations are deteriorating sharply :
Between China's search for oil and Koizumi's shrine visit, the level of anger and suspicion is rising fast.
(23-Oct-2005)
China and Japan head for military confrontation over disputed islands.:
Meanwhile, a Chinese general threatens America with nuclear war over Taiwan....
(16-Jul-05)
How generational changes affect Japan and China:
A page one article in today's Wall Street Journal...
(28-Jun-05)
China makes five demands of Japan:
After Japanese leader apologized at length for Japan's history,...
(25-Apr-05)
Neither China nor Japan backing off from increasing confrontation:
As conflict increases, America's Pacific strategy is coming apart at the seams....
(20-Apr-05)
Thousands of Chinese protesters hurl bottles at Japan Embassy in Beijing:
Anti-Japanese feelings in China and Korea have been erupting for weeks....
(09-Apr-05)
Korea - Japan relations nosedive over long-disputed islands:
2005 is supposed to be "Korea-Japan Friendship Year,"...
(18-Mar-05)
Japan blocks most North Korean ships from its ports:
The Japanese, infuriated by North Korean abductions in the 1970s,...
(01-Mar-05)
Ambassador to Japan calls North Korean threat "deadly":
While the Bush administration has been trying to give a muted, non-alarming response to the North Korean threat,...
(18-Feb-05)
Japan:
Is Japan's economy finally near collapse?
(26-Mar-03)
Japan and China in confrontation over comfort women:
Meanwhile, countries throughout region are increasingly anxious as China makes major new military announcements....
(7-Mar-07)
Vice President Dick Cheney, in Australia, criticizes China's military buildup.:
Cheney repeats Donald Rumsfeld's similar warning in Singapore in 2005....
(23-Feb-07)
China successfully tests an anti-satellite weapon:
In a military escalation clearly targeting the United States,...
(19-Jan-07)
China says that increasing numbers of "major mass incidents" threaten government:
Lauding the Chinese Communist Party's "courage to confront realities,"...
(10-Dec-06)
New Pentagon report details China's preparations for war:
"China's leaders have yet to adequately explain the purposes...
(24-May-06)
China's plans for war with America:
China is openly making plans for all-out war with the United States,...
(1-May-06)
Japanese and Chinese relations are deteriorating sharply :
Between China's search for oil and Koizumi's shrine visit, the level of anger and suspicion is rising fast.
(23-Oct-2005)
China appears to be approaching a major civil war : Unrest is spreading, and economic disparities make China a textbook case for a massive civil war in the making (16-Jan-2005) Up to 50,000 workers riot and clash with police in southeast China:
As income disparities and food problems continue to grow in China,...
(26-Dec-04)
Is China unraveling?:
Should you invest in the world's fastest growing economy? Analysts say yes, but there are ominous generational signs of financial and social instability in China.
(10-Sep-03)
| ||
Last week, new intelligence revealed that China is engaged in a major buildup of its submarine fleet, with new submarines capable of launching missiles at Japan or the United States.
Japan, which is trying to establish better relations with China, officially expressed muted concern. At a press conference, Japan's Chief Cabinet Secretary Yasuhisa Shiozaki said that China should be clearer militarily. "China needs to try harder to make its defense policy more transparent," he said.
The backdrop was a statement last week by Japanese president Shinzo Abe that the Japanese would no longer apologize for the use of "comfort women" during WW II. Some historians estimate that, during World War II, as many as 200,000 women, mostly from Korea but also from China, the Philippines, Thailand, Vietnam, Malaysia and Indonesia, were forced to serve as sex slaves for Japanese soldiers.
 |
On March 1, Abe said that that there was "no evidence" that the women were forced into prostitution, and that they participated voluntarily. Abe also said that he stands on a 1993 Japanese government apology for the use of comfort women.
This has caused outrage of surviving comfort women survivors of several countries. Several countries, including the United States, have urged the Japanese to accept full responsibility.
Abe's position is supported by 120 members of Abe's Liberal Democratic Party, who demand that the 1993 apology be reversed. The situation is further complicated that many of the women expressing outrage are demanding financial compensation for being victims of the comfort women program, which clouds everyone's motives in the matter.
From the point of view of Generational Dynamics, there's no doubt that activities of these types occur in crisis wars. Voluntary prostitution is common in a crisis war, as is involuntary rape. What often happens is that the victors of a battle mass-murder the men and mass-rape the women. This is part of what makes us human -- the built-in mechanisms for the victor to demand that their sperm be used to create the next generation, and for women to be attracted to the male victors. All these things are part of the overall "survival of the fittest" mechanism, and if they didn't occur, the human race would not exist today. All of these activities are occurring today in Darfur, the only crisis war going on today.
The issue of comfort women is especially sensitive in relations between China and Japan. There is a major fault line between the two countries, and Generational Dynamics predicts that they will be at war with almost 100% certainty.
Japan became a pacifist nation following World War II, and remained so as long as the survivors of WW II remained in power in the government. But in the last few years, a new generation of leaders, born after WW II, has been taking power, with the result that Japan has been increasingly renouncing its postwar pacifism. In December, Japan upgraded its Defense Agency and passed legislation calling for increased patriotism, asking teachers to instill thinking among students "respecting tradition and culture and loving the nation and homeland."
The same generational change has occurred on both sides of the Sea of Japan. China and Korea are increasingly confrontational with Japan, and Japan's new Prime Minister Shinzo Abe, born in 1954, who is considerably more hawkish than Junichiro Koizumi, the man he succeeded in September, 2006.
However, Abe has been openly seeking to improve relations with China, and there's still a bit of a honeymoon between the two countries, especially since they're united behind negotiations to get North Korea to reverse its development of nuclear weapons. Relations were extremely bad in early 2005, when there were massive anti-Japanese riots in Chinese cities.
At that time, Chinese Premier Wen Jiabao made extremely strong anti-Japanese remarks: "The core issue in China-Japan relations is that Japan needs to face up to history squarely. ... Only a country that respects history, takes responsibility for past history and wins over the trust of people in Asia and the world at large can take greater responsibility in the international community."
Now Wen, who can be seen in the adjacent picture giving the "State of the Union" speech to China's National People's Congress earlier this week, will be visiting Japan in a few weeks. Wen did not mention the comfort women issue in his speech, but Foreign Minister Li Zhaoxing gave a separate press conference on Tuesday, repeating Wen's 2005 warning, calling on Japan to face up to history and take responsibility for the comfort women.
From the point of view of Generational Dynamics, all the pieces are falling into place for the Asian and Pacific theatre of the Clash of Civilizations World War. China is becoming more of a military state almost daily; Japan, Taiwan and India feel increasingly targeted by China, especially as China allies militarily with numerous other nations in the region.
We're very close to the point where a miscalculation on almost
anyone's part -- Japan's, Taiwan's, China's or America's -- will be
the only thing necessary to create a situation that can quickly
spiral out of control into a major regional war, and then a world
war.
(7-Mar-07)
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Fearing full-scale panic in the mortgage loan marketplace, as shares of several mortgage lenders fell 20-30% on Monday.
Fremont General Corp. sent employees home after being informed of a federal criminal probe. As I've recently said, history tells us that we should expect many people to go to jail before all this is over. Morgan Stanley, Goldman Sachs and Merrill Lynch have just had their bond ratings lowered to Baa2 -- almost "junk" status, because these investment firms have major exposures to losses in subprime mortgages.
The subprime mortgage marketplace has, for all practical purposes, been shut down for the time being. The collapse of subprime mortgages may or may not be spilling over into prime mortgages, and there's even some worry about the normally solid commercial mortgage market.
Pundits on television pretty much expressed the opinion is mostly that "there's nothing to worry about," but there was a change on Monday: The appearance of the phrase "risk aversion." This is a phrase I've used on this web site for years, but it's the first time I recall hearing it or reading it among the financial pundits. And I heard it several times on Monday.
It reflects that investors are less willing to take risk than they were even a few days ago. They were really shaken up by last week's stock market turmoil.
I look at this question of risk aversion over a much longer time period.
My mother, who was forced to get find a job for $8.00 per week when her father's candy store went bankrupt during the 1930s was a risk-averse person. She never spent an unnecessary dime, and shunned credit. Most people who lived through the horrors of the Great Depression were extremely risk-averse.
When those risk-averse people were investors and financial managers, our whole economy was run on a sound basis. But when the Baby Boomer generation took over as senior financial managers, risk aversion was thrown about the window. The result was the stock market bubble of the late 1990s, and the following housing, commodity and credit bubbles.
I've been using my own informal method for measuring risk aversion, or lack of it.
At the bottom of the home page of this web site, there's a graph that changes weekly showing the S&P 500 price/earnings index for the last ten years. Here's the chart as of Mar 2:
 |
The top part of this graph shows the S&P 500 Price/Earnings ratio for the last ten years. During this period, investors have been willing to far overpay for stocks.
We can think of the willingness to overpay for stocks as lack of risk aversion. Since 1995, and continuing until the beginning of 1994, P/E ratios were astronomical, indicating that investors were vastly overpaying for stocks. At the beginning of 2004, the unexpected failure of unemployment to fall frightened investors, and they became more risk-averse than the had been.
So, I hope you get the idea: The lower the P/E ratio, the higher the risk aversion of investors.
So risk-aversion has continued at this high level since 2004, going a little higher as the P/E ratio goes down.
Now, if you look at the results of last week, you'll see that the P/E ratio has fallen again, slightly, indicating that investors have become slightly more risk-averse than they were the week before.
This is an informal way of looking at risk-aversion, of course, but it makes a very important point that the pundits are not seeing: The increased risk-aversion began in 2004, not last week.
It's clear that the pundits are confused about this, because many of them expect the market to start reaching new highs again in only a few weeks.
But reaching new highs again requires that investor risk-aversion decrease again. Indeed, with recent earning increases lower than they've been in recent years, it should take a very great deal less risk-aversion for the market to reach new highs.
Now, I've been surprised time and again by the genuine craziness of today's investor, pushing bubbles to newer and newer heights with reckless abandon, and with no appreciation that the higher they are, the harder they'll fall.
Who knows -- maybe I'll be surprised once more, and somehow the stock market bubble will again expand to an even more ridiculous size, and the stock market again will reach yet another new high. But with risk-aversion increasing pretty steadily for three years now, I would not expect risk-aversion to fall again, and I would not expect a new stock market high again.
From the point of view of Generational Dynamics and this web site,
it's interesting to see the slow but steady increase of
risk-aversion, just as it steadily decreased in the years when the
Boomer generation were first taking over. The cycle is progressing
and heading for a final climax.
(6-Mar-07)
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Investors are disappointed that the market didn't "feel some panic."
After three days of massive swings in the market, things settled down a little on Friday morning, giving pundits a chance to debate where the market is going.
My interest on this web site is mainly in analyzing attitudes how of pundits and investors change. In particular, I want to track the developments predicted by the Principle of Maximum Ruin -- that the maximum number of investors will be ruined the maximum amount. The Principle of Maximum Ruin is really starting to kick in now.
The big debate among the pundits on Friday was this: How much further will the market fall? Some said 7-10% of the next few weeks, and others said it had already bottomed out, and would be hitting new highs within a couple of weeks. There was one person, Doug Kass, who was predicting a "crash," but he was quickly ignored. However, he had some very interesting analysis, so I'll come back to his remarks later in this article.
 |
The other interesting remark was this, stated on Thursday and Friday by CNBC anchor Erin Burnett, in answer to the question, what do the "big money" investors think of what happened this week:
Now think about what this means. First, the "big money" thinks, with absolutely certainty, that the worst will soon be over, and that the worst that will ever happen is that the market will lose 7-10%. Furthermore, these experts will KNOW when it's over because they'll "see and feel some panic" in the marketplace. They're really confident of themselves, aren't they? As the old saying says, "Pride goeth before the fall."
This is important -- the "atmospherics" changed drastically on Friday -- much different than on the preceding three days.
On the preceding days, the discussion was whether the market was having a complete meltdown.
By Friday, the only discussion was whether the selloff would be 7%, 10%, and 20%. Furthermore, the rest of the discussion was over whether the market would be reaching new highs again in two weeks, two months, or six months.
Before Friday, no one had any idea what was going to happen; by Friday, there was no longer any doubt that things would quickly return to "normal."
It took only three days for pundits and investors to completely forget the lessons of Tuesday. Then the "cant and incantation" that I described was operating in full force.
Now, let's take an entertainment break. I'm grateful to the Housing Panic Blog for pointing out two interesting videos, both well worth viewing.
Suzanne Researched This Commercial
This was a sickening commercial when it first aired, and it's even more sickening today.
Housing Bubble vs. Great Depression
This is an excellent comparison of today's world with 1929.
Feel free to sing along with the second video:
I'm forever blowing bubbles,
Pretty bubbles in the air,
They fly so high, nearly reach the sky,
Then like my dreams they fade and die.
Fortune's always hiding,
I've looked everywhere,
I'm forever blowing bubbles,
Pretty bubbles in the air.
These two videos show the creeping perniciousness of the Principle of Maximum Ruin.
This is what's going on today. It doesn't matter how bad things get, you will always get politicians and analysts telling you how good things are and economists telling you whatever you want to hear.
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Douglas A. Kass of Seabreeze Partners Management was the only analyst I saw who predicted an extremely negative outcome.
Kass runs a "short fund," meaning that his fund is for people who believe that the market is going down. That gives him a reverse bias from all the other analysts. However, since the he's the only person with this bias, it's worth seeing what he has to say.
Kass had a lucky break this week. His fund normally is 60% "short" (bets that stocks will go down) and 40% "long" (the standard stock ownership, bets that stocks will go up). But he appeared on television on Monday and said that things looked so bad that his fund was now 100% "short." The big stock market selloff occurred the next day, so he appeared on CNBC on Friday morning to explain why he had been so prescient.
Here's what he said:
[Asked, how big a drop?] I don't know, everyone's definition of "crash" is a little bit different. [what's yours?] but certainly a decline of well over 10 or 15 -- ten percent, let's say."
I want to pause here and describe the body language. Anyone who's believes that there'll be a "crash" and has done all the math knows that the the market will fall 50-75%. Kass must have known this. But people who give a figure that high are treated as crazy (as I can testify from personal experience). So Kass really hesitated on this answer, then mumbled "10 or 15," and then finally settled on "10%, let's say." But there's no doubt in my mind that he had a much higher figure in mind.
He said that there were "three catalysts" that led him to believe this, and he listed them.
Here's the first catalyst:
Credit is the lifeblood of our economic well-being. and mortgage availability correlates very well with personal consumption expenditures. So that consumer that spent up, not pent up, and very levered, is going to get hit over the very short term."
Kass's first catalyst mentions three factors. The BSE (Bombay Stock Exchange in Mumbai, India) had started falling rapidly after reaching a high of February 7 of 14643. By Monday it had fallen 1000 points to 13649, and by Friday it as 12886, a total 12% decline within a month.
The other factors have to do with housing boom bust, and the collapse of the subprime mortgage. These are going to have major impacts on the availability of consumer credit. This will heavily impact consumer spending, and that will have a major effect on the stock market.
Here's his second catalyst:
Now this is very interesting.
Regular readers of this web site know that I'm constantly complaining that pundits, journalists and analysts out-and-out lie about price/earnings ratios, usually by exaggerating earnings enormously.
Pundits also err by ignoring the law of "Mean Reversion," which says that even if it were true that P/E ratios had returned to their historic averages (which they haven't), then they still have to make up for 12 years of being far above average by going far below average for a number of years.
But Kass raises a different issue that I've never considered before: That the S&P 500 are heavily weighted to financial and energy stocks, and that they've had lower P/E ratios. He says that when you look at 3000 stocks, then P/E ratios are 20 1/2, which is very high. This is a question that needs further investigation.
Here's his third catalyst:
I don't completely follow this, but if a chain is as strong as its weakest link, he appears to be saying that he's found the weakest link. The hedge fund industry is a worldwide pyramid scheme (or Ponzi scheme). Any pyramid scheme has to collapse sooner or later, and Kass appears to be saying that the point of collapse is going to be in Switzerland, and that it could "take the market down."
He adds:
That's a pretty startling scenario. It's something to watch for.
A reader sent me this joke:
Three high school students are taking an exam that requires a mathematical computation.
The mathematician's son does the entire computation, and finds the correct answer. He writes the answer at the bottom of the page, and draws a circle around it.
The engineer's son doesn't do the computation, but performs an estimate, and comes up with a possible range of answers. He writes the range of answers on the bottom of the page, and draws a circle around it.
The economist's son just writes the following on the bottom of the page, "Anything you want the answer to be."
On Friday, one of Morgan Stanley's top economists, posted an article called "Does Market Turmoil Change the Outlook?"
This article illustrates everything that's wrong with economists. This is an incredibly shoddy piece of work. It's so bad that I was tempted to name Richard Berner this week's Idiot of the Week, but I decided that it would be unfair to single him out, when so many economists are idiots.
Berner fills an important role at Morgan Stanley - the role of saying that everything is going to be OK, so that clients will still pay for Morgan Stanley's services. Someone has to do that because Berner's boss is Morgan Stanley's chief economist Stephen Roach, who is well known as a "bear." So Berner has undoubtedly been ordered to be Pollyannaish at all costs.
Berner wants to prove that there's no reason to modify his previous rosy outlook, even after the week's turmoil on the stock market.
To do this, he discusses his preferred macroeconomic model that proves that everything is all right. So when you read Richard Berner's Friday column, where he discusses different macroeconomic models, you quickly realize what nonsense mainstream macroeconomics is, and what charlatans mainstream economists are.
Look at this paragraph:
Here's what Berner is doing: He's saying that various macroeconomic models produce results that he doesn't like, so he's going to devise a different macroeconomic model. A "weighted composite of changes in asset prices" isn't good enough for him. Neither is the computerized model developed by Macroeconomic Advisers.
So he's made up his own model -- with "interest rates" and "currency" and "wealth effects" and -- wait for it -- and judgment!! The macroeconomic model he likes is the one that lets him say any damned thing he pleases.
And where did he develop that judgment? During the 1990s when there was a stock market bubble? During the early 2000s when there was a housing bubble? How can he have developed "judgment" that applies to a time when the housing bubble is bursting and the subprime mortgages are melting down? It's not possible.
In fact, this is a problem that's wrong with all mainstream macroeconomic modeling, as I explained in last October's article, "System Dynamics and the Failure of Macroeconomics Theory."
Have you ever watched TV when there was a hurricane headed for the southeastern coast of the U.S.? They have a guy from the NOAA come on, and he typically explains how they use three different computer models: one model predicts that the hurricane will make landfall in Virginia, another predicts Florida, and another predicts Louisiana. Those computer models were developed by modeling hundreds of hurricanes over a few decades, and even so, the model isn't very good.
Well, at least the hurricane models are based on the earth, and the earth tends to stay the same from year to year and decade to decade.
But that can't be said of macroeconomic models. The underlying assumptions are constantly changing. Today's economy, with the hedge fund explosion, the housing collapse, the mortgage industry collapse, and America's huge global debt is completely different from the underlying economy when the current generation of macroeconomic models were built. Macroeconomists are always fighting the last war simply because their models are all from the last war.
So now let's come back to Richard Berner. What he wrote is total, utter nonsense. He sat down at his computer and he typed in a piece of crap. There's no other way to describe it. It's meaningless garbage.
And now get this for the real kick: Bloomberg has just published an article saying that Morgan Stanley, Goldman Sachs and Merrill Lynch have just had their bond ratings lowered to Baa2 -- almost "junk" status. Why? Because these investment firms had invested in mortgage banks that have now gone bankrupt. And Berner's a top economist at Morgan Stanley.
Well, if these guys are so stupid that they drive themselves into junk status, then what reason do we have to believe that they're any less stupid now?
If these guys define their "Macroeconomic" models, then I'd like to define the Xenakis "Macroeconomist" Model. Go back and determine the results of each economist's predictions, and use those results to estimate how much of a moron he is.
Most of these people have a fiduciary responsibility to their clients. That means that if Berner thinks that the market is going down, he has a fiduciary responsibility to say so. Professionally, these guys don't have the "right" to make up macroeconomic models that bring in the greatest levels of income. I call these people stupid because I hold them to a much higher standard than I hold an ordinary person. They're supposed to be experts. So either they don't know what they're talking about, which makes them stupid, or they know what they're doing and thereby risking going to jail, which also makes them stupid.
History shows that by the time that this is all over, a lot of these
people will indeed be in jail.
(5-Mar-07)
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Answers to financial questions from readers.
I've been receiving a lot of financial questions from concerned readers lately. Some of these questions would require an operational crystal ball to answer, and others can be probabilistically answered, based on trends identified by Generational Dynamics forecasting.
I have always been very reluctant to give financial advice, and that's still true today, but I'll try to say as much as I can.
Almost every journalist, pundit, analyst, and advisor has some financial stake in today's market, and their answers to financial advice questions are influenced by what is most likely to make money for them. I have nothing at stake except my own credibility, so my answers will be a lot more cautious than answers by others.
This article is meant to be comprehensive, so it will repeat material I've given in other articles. In particular, I want to give the theoretical explanation of what things can and cannot be predicted, so that readers can draw their own conclusions about the validity of the predictions.
| Q: |
You've been saying for years that "the stock market will fall to the Dow 3000-4000 range, probably in the 2006-2007 time frame." If it doesn't happen in 2007, does that mean you simply move the time frame to 2008? Is it ever possible for you to be wrong?
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| A: |
There's no way to predict the date of a generational panic. If I knew of a way, then I'd be wealthy, instead of being an unemployed senior IT consultant who is just getting by. I'm very, very aware of the problem you mention, so what I do instead is point to imbalances that can't continue. In my article, "System Dynamics and the Failure of Macroeconomics Theory," I show that macroeconomic theory doesn't get anything right, and so at least I'm no worse than mainstream macroeconomics (though admittedly that isn't a very high bar). But more important, I've pointed out that mainstream macroeconomics predicts that various things should be leveling off and falling - public debt, balance of payments, etc. -- but they keep growing exponentially. With hedge funds, I've shown that the global economy has turned into a giant pyramid scheme (or Ponzi scheme) -- and you can't predict when a pyramid scheme will crash either, but you know for sure that it has to crash. So I use the terminology "it could happen next week, next month, next year, or thereafter, but probably sooner rather than later," to convey a sense of urgency without committing to a date. But the point is that the imbalances cannot continue. It's mathematically impossible. So that's the best I can do for a date, until I can find someone who can repair my fortune telling globe. So my answer to the complaint that my forecast can never be proven wrong is as follows: If public debt and global account balances and hedge fund market values actually start falling, instead of growing exponentially as they've been doing for years, then you can declare me "wrong."
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| Q: |
While your comments regarding the stock market are very interesting I miss any remarks about currency issues. Will we get deflation or inflation? Will gold rise? Will the dollar do better or worse than the yen? Isn't the real bubble in emerging markets?
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| A: |
Normally I can't make any such specific predictions, because that's not what Generational Dynamics is all about. The comparison to weather forecasting is as follows: A weatherman will see that the barometer is falling, and from the thermometer that the temperature is freezing, and conclude that it's probably going to snow. The predictions that I make are of a different kind: No matter what the thermometer or the barometer say today, the weather is going to get warmer over the next few months because summer's coming. Simple, huh? In other words, Generational Dynamics identifies trends that are decades or even centuries long and applies them to today. The methodology for making the resulting forecasts is what I've been working on for five years. My web site has been an open experiment since 2003: every article I've written, every prediction I've made is still on the web site, where anyone can go back and read it to make sure that I'm not fudging. Of the variables you've mentioned above, I believe the only one that I've commented on is the inflation rate, where I've said that we're in a long-range deflationary trend, and that I expect prices to fall 30% by 2010. However, relative currency values over the next two decades will probably depend on who wins the war. From the point of view of Generational Dynamics, I can't narrow things down too much. Generational Dynamics predictions are based on the attitudes and behaviors of large masses of people, entire generations of a population. Every individual has free will. The attitudes and behaviors of one person or a small group of people, including a group of politicians, cannot be predicted. However, entire generations of people act in predictable and cyclical manners, and the attitudes and behaviors of entire generations of people can be predicted, in some cases rather precisely. So the "real bubble" is not one particular market or one particular asset. The "real bubble" is that entire generations of people alive today have lost all semblance of risk aversion, and they'll use whatever tools are available -- Wall Street, emerging markets, hedge funds, whatever -- to exhibit this wild, debauched, unprincipled financial behavior. When you ask whether the "real bubble" is in emerging markets or Wall Street, you're asking about the tools the investors are using, not about the generational attitudes and behavior. And there's no way to predict what tools will be used, except that if a tool is available, it will be used.
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| Q: |
How come financial analysts on television can make specific forecasts?
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| A: |
As I said, they're like weather forecasters. They can tell you whether it will rain tomorrow, but they can't tell you whether it will rain next week. These are short-term forecasts. Let me give an example from Friday on CNBC. Host commentator Larry Kudlow was arguing with several people -- consultant Steve Liesman, and guest Nouriel Roubini -- about whether the economy is going into a recession. Now, there are several so-called "economists" who make predictions based on political inclinations. Two of the worst miscreants in this regard are Larry Kudlow, who is biased to the right, and Paul Krugman, who is consistently to the left. It was amusing to see Kudlow criticize pro-Democratic anti-Bush Krugman on Friday for predicting nine recessions in the last four years, while the pro-Republican pro-Bush Kudlow invariably predicts that things are always going to do well. These are all political forecasts, and they're worse than useless. Now, in his discussions with the other economists, Kudlow wanted to make the point that there are many indicators that we're headed for a boom economy, and few indicators that we're headed for a bust. Without attempting to comment on them, here's his list of the indicators that we're headed for a boom economy: JoC [Journal of Commerce] Industrial Metals Index, CRB [Commodity Research Bureau] Futures Index, CRB Spot Index, Dollar Index, Yen Carry Trade, Emerging Markets Spread, OFHEO [Office of Federal Housing Enterprise Oversight] Home Price Index, ISM [Institute for Supply Management] Manufacturing Index, Junk Spread/Baa Spread, Profits/Profit Margins, Low Unemployment/High Wages, Record Low Margin Tax. And here's his much shorter list of "bust" indicators: Gold, Copper, Yield Curve Spread, 10-Year Yield. (Why isn't the housing bubble bust on this list? I don't know.) The point I want to make is that it's ALWAYS possible to prepare two lists like this. Even in the depths of the Great Depression, I'm sure that there were some indicators of a "boom." So all the economists end up doing is choosing their favorite short-term indicators and talking about them. Someone on the other side of the issue chooses from his opposing list of indicators. That's why these economists can make specific predictions, and that's why their predictions have no better probability than chance of being right. The analogy to weather forecasting is this: They see that the outside temperature was in the 40s last week, and is in the 30s this week, and so they predict that the temperature will be in the 20s next week. (This analogy is a very accurate one, incidentally.) They use short-term indicators, and completely ignore the long-term trend that indicates that summer is coming. Generational Dynamics predictions are not like that. (Recall the weather forecasting analogy -- predicting that it's going to be hot this summer). That's why Generational Dynamics predictions are always right, even though the time frame cannot be predicted with certainty. However, the forecasting methodology that I've been developing these last five years does use current economic indicators, but in a different way than the pundits. Generational Dynamics long-term forecasting alone tells me the final destination, but not what route we'll take or the timeline indicating how long it will take. The full forecasting methodology combines the long-term predictions, giving us the destinations, with short-term economic indicators and events, to identify the route and the timeline. This is what I've been developing all these years, and everything I've done is posted on this web site (or, in the case of more theoretical matters, in the "Objections to Generational Dynamics" thread of the Fourth Turning forum). The weather forecasting analogy is this: We know that summer is coming, but we're not sure when. So we look at the thermometer and the temperature trends, and we use that information to determine how close we are to summer. This is a very different way of using the thermometer than the pundits do. Incidentally, I've used the same forecasting technique in politics as well. For example, in the Israel/Palestine region, the May, 2003, Generational Dynamics prediction was that Arafat's disappearance would be part of a generational change that would lead the Mideast into a massive new crisis war (between Jews and Arabs), re-fighting the bloodbath war in 1948-49 following the partitioning of Palestine and the creation of the state of Israel. Since then, I've been tracking events to correlate them with the Generational Dynamics prediction, in order to narrow the time frame and determine the scenarios.
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| Q: |
Perhaps you can make some forecasts based on long-term trends. The value of the U.S. dollar went up in the 1930s Great Depression. Will that happen again in a new Great Depression? How will it do against the yen and the euro?
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| A: |
It's impossible to predict. Remember that the U.S. was enormously a creditor nation in 1929 and throughout the 1930s, while today we're enormously a debtor nation. Many economists today believe that the yen is substantially undervalued, so it might end up doing the best. I suspect that there is a lot of merit to this claim, but this is not an issue I've studied. The euro looks strong today, but it has very weak fundamentals because its continued existence depends on agreement and support by many euroland countries, and the EU countries are bitterly divided over the EU constitution. After all these years, Britain still uses a national currency instead of the euro. When a real financial crisis arrives, it's quite possible that several euroland countries will drop the euro and return to their national currencies. In fact, Morgan Stanley warned about exactly that in 2004.
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| Q: |
If the market is going to fall, should I sell short?
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| A: |
For those who don't know, "selling short" is a technical method for betting that a particular stock, or the stock market as a whole, is going to fall. In its simplest form, it works like this: You borrow some shares of stock, and you sell them at the current price. Three months later, you're required to buy the same number of shares at the price at that time, so you can repay the stock loan. If the price has gone down in the meantime, then you've made money. In the current market, there are two big problems with selling short:
Even in the best of times, selling short should be attempted only by investors who REALLY know what they're doing.
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| Q: |
What should I buy when I sell my stocks? Should I buy gold?
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| A: |
The price of gold will depend on so many chaotic factors that it's impossible to predict what will happen. In the case of a major financial crisis, when factories are closing, the value of gold may go down along with other commodities. On the other hand, if the Clash of Civilizations World War begins, then the value of gold will probably spike up, at least for a while. But then there's the other problem: If you have gold in a crisis, what will you do with it? You can't eat it, so you have to exchange it for cash or food, and that may be a problem. It's even possible in some scenarios that the government will confiscate all gold, so your gold would be useless.
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| Q: |
I buy and sell stocks on my desktop computer. Suppose I keep my money invested, but sell everything the moment that things look really bad. I can do it right away at any time, since I'm always at my computer.
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| A: |
There are two things wrong with this strategy. First, you won't necessarily follow through. This kind of day trading is a gambling addiction, and you won't want to sell out so easily. You may decide to wait a little longer to see if the market goes up again, and then you'll lose even more. Second, you won't be able to sell. When a generational panic occurs, as in 1929, the computer systems of every bank, broker and exchange will be overwhelmed with sell orders. It's likely that the markets will have to shut down for a few hours, or for a day or two. So the market will keep falling, and you'll be stuck using your desktop computer to run a spreadsheet computing how much money you're losing every minute.
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| Q: |
What's the "Principle of Maximum Ruin"?
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| A: |
The Principle of Maximum Ruin is my name for a phenomenon that economist John Kenneth Galbraith described in his 1954 book The Great Crash - 1929, summarized in the following passage:
"A common feature of all these earlier troubles
[previous panics] was that having happened they were over. The
worst was reasonably recognizable as such. The singular feature
of the great crash of 1929 was that the worst continued to
worsen. What looked one day like the end proved on the next day
to have been only the beginning. Nothing could have been more
ingeniously designed to maximize the suffering, and also to
insure that as few as possible escaped the common misfortune."
(p. 108)
In other words, all the experts were fooled, because nothing like it had happened in their lifetimes. That's Generational Dynamics in action. Galbraith showed how, after the initial crash on October 24, 1929, "In the first week the slaughter had been of the innocents," in the second week it was "the well-to-do and the wealthy" who were slaughtered (p. 113), and then more and more people were sucked into ruin during the years that followed. Maximum ruin for the maximum number of people. This process has already begun again, and today it's in full swing.
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| Q: |
What are "cant" and "incantation"?
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| A: |
These are the words used by Galbraith in the book just referenced to describe how government officials and financiers believe that they can keep the economy sound. Almost all commentators have an enormous bias: They MUST predict an improving economy if they want to keep their jobs. A stockbroker, a pundit, a journalist, a politician will lose his job or be shunned if he predicts a financial crisis, or even a recession. This was clear in the past week from the harsh condemnations of Alan Greenspan, whose remarks saying that a recession was a possibility could hardly be arguable. Galbraith gave dozens of examples of this. His point was quite similar to mine: That the commentators and analysts don't have the vaguest idea what they're talking about. Here's what he wrote about the comments of the great financier Andrew W. Mellon:
"In any case, ... reassurance came from still
higher authority. Andrew W. Mellon said, "There is no cause for
worry. The high tide of prosperity will continue."
Mr. Mellon did not know. Neither did any of the other public figures who then, as since, made similar statements. These are not forecasts; it is not to be supposed that the men who make them are privileged to look farther into the future than the rest. Mr. Mellon was participating in a ritual which, in our society, is thought to be of great value for influencing the course of the business cycle. By affirming solemnly that prosperity will continue, it is believed, one can help insure that prosperity will in fact continue. Especially among businessmen the faith in the efficiency of such incantation is very great." (p. 15-16) Galbraith uses the words "cant" or "incantation" to describe what's going on. The dictionary defines "cant" as: "insincere, esp. conventional expressions of enthusiasm for high ideals, goodness, or piety." The dictionary defines "incantation" as either "the chanting or uttering of words purporting to have magical power," or "repetitious wordiness used to conceal a lack of content; obfuscation." This exactly describes the situation. Long-time readers of this web site may recall from 2004 how shocked I was that Bernanke congratulated the Fed's jawboning policy for improving the economy. In other words, as incredible as it seems, he believes that the viability of the economy depends on what he and the Fed governors SAY. Fundamentals make no difference at all. Reading it, I couldn't believe my eyes. And, as I've said in previous articles, that's the piece that's really crazy about today's leading "experts." No one asks, "What is the REAL value of the stock market?" because the only possible answer to that question is around Dow 4500-5000. And so, the "experts" don't think about that, but simply worry about what people say, as if that's all that matters. There's almost no common sense; just cant and incantation. And cant and incantation are very important factors in the Principle of Maximum Ruin.
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| Q: |
What is "volatility," and why does high volatility indicate that a panic may be near?
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| A: |
Officially, the VIX is the "Volatility Index," computed by the Chicago Board Options Exchange (CBOE). Intuitively, volatility means that the stock market as a whole is making wild swings up and down. This occurred earlier this week, on Tuesday, when the market swung through a range of over 500 (Dow) points. By Friday, the volatility had gone down, and Friday was a fairly quiet day. In "normal times," investors make buy/sell decisions by examining individual stocks. When investors take individual paths, betting on individual stocks, then one investor's gains are canceled out by another investor's losses, so the market as a whole remains steady, and volatility is very low. But when volatility spikes up, it means that investors are now betting on the market as a whole, rather than on individual stocks. It's a state of frantic, high anxiety, because investors are panicking, for fear that the entire market will fall further, and they'll lose money, or that the entire market will go upward, and they'll lose the opportunity to make money. When investors get into this state, they're essentially treating the entire market as a single stock, and they either buy the market or sell the market. Now, the point is that, even in normal times, an individual stock is much more volatile than the market as a whole. A scandal could force an individual stock to fall 50%, or an unexpected merger rumor could double the stock value. When investors are so frantic that they treat the entire market as a single stock, then the stock market as a whole can become extremely volatile, subject to any bit of news or commentary. That's when the volatility is high. So it becomes a cycle. Bad news makes the investors anxious. Anxious investors sell off, and the selloff becomes more bad news that makes investors even more anxious. Under the right conditions, the anxiety reaches a tipping point and turns into full-scale panic. Those are very dangerous times. Just as an individual stock could fall 25% in a day or two, when investors treat the whole stock market as if it were an individual stock, then the whole stock market could fall 25% in a day or two, as happened in 1929 and 1987.
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| Q: |
Can you say anything at all? Where should I put my money?
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| A: |
There are a few things that I've told people to do. These are forecasts I can make because of long term trends. For most people, the best bet is to keep your money in cash in a local bank you can get to quickly, or else stick it in your mattress. Another alternative is to put your money into short-term 6-month Treasury bonds. You can purchase them online for no commission from http://treasurydirect.gov . They're almost entirely risk-free, and pay around 5% interest. However, keep some cash around, since you may not have any internet access during a crisis.
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| Q: |
What about long-term Treasury bonds, 10 year or 30 year?
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| A: |
I've had arguments with people over this. There are more than two trillion dollars of these long-term bonds sitting in central bank vaults around the world, especially in Japan, China and the UK. Furthermore, this amount continues to grow exponentially. As a result, "everybody" knows the U.S. Treasury will never be able to redeem all those bonds. People tell me, "Of course they'll all be redeemed. The Treasury can print as much money as it wants, and it could redeem them all tomorrow." But my intuition tells me that when the world is flooded with some trillions of some particular item, and that the number of trillions keeps growing exponentially, and that those trillions of items could go on the market at any time, then those items may turn out not to be very valuable. During a crisis or a war, China or another country may put several hundred billion dollars worth of these long-term bonds on the market in order to destabilize the American economy. At that point, if you happen to have some of these bonds, they'll be worthless. So, if you're going to buy Treasury bonds at all, the best bet is probably short-term, 6-month Treasury bonds.
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| Q: |
What's a "generational panic"?
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| A: |
If you go back through history, there are of course many small or regional recessions. But since the 1600s there have been only five major international financial crises: Tulipomania bubble (1637), South Sea Bubble (1721), French Monarchy bankruptcy (1789), Hamburg Crisis of 1857 (or Panic of 1857), and 1929 Wall Street crash. Each of these major international crises occurred roughly 70-80 years after the previous one. What you find is that each new "debt bubble" occurs at exactly the time that the generation of people who grew up during the previous financial crisis all disappear (retire or die), all at once. Thus, the length of time between these "generational" financial crises is approximately equal to the length of a maximum human lifetime. Our 70-80 year interval is pretty much over. The next major 1930s style Great Depression is just around the corner, with 100% certainty. Nothing can be done to stop it. All we can do is prepare for it. As we've been saying since 2002, it's possible to prove that a major 1930s style Great Depression is coming, simply by noting that the stock market is overpriced by a factor of over 200%. Price/earnings ratios have now averaged 20 or more since 1995, and this alone shows that a crash is coming, since P/E ratios always fall close to 5 every decade or two, the last time in 1982. Today, you can look at various variables -- public debt, trade balances, hedge fund market -- and note that these variables have been growing exponentially, with no sign of leveling off and falling, and no willingness in Central Banks to force them to level off and fall. You can show mathematically that this situation cannot continue. So it's easy to prove that we're close to a major financial crisis, but it's impossible to know exactly when. When it happens, it will be triggered by a generational panic, the first since 1929. It will be a massive loss of confidence throughout the country and the world, total destruction of self-confidence, replaced by a corrosively growing fear, leading to panic, massive homelessness and bankruptcies. We're actually overdue for that, just as we're overdue for a flu pandemic. It's impossible to predict when this panic will occur, or what will trigger it. There have been some times in the last couple of years when I've warned my readers to be especially cautious, since the markets seemed particularly nervous. This was especially true following the LiveDoor collapse a year ago, and again in May, when synchronized markets around the world fluctuated wildly. However, investors have always returned to their previous levels of starry-eyed giddiness, pushing the market bubbles even higher. Right now, and for the next few months, is another time of extreme danger. It is the wrong time to be in the stock market.
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| Q: |
So where should I put my money?
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| A: |
I never did answer that question, did I? The truth is that we're headed for a time of financial crisis and war that few people alive today have ever seen before. The last time was the 1930s and early 1940s, and the time before that was the late 1850s and early 1860s. At times like this, there's no guarantee of anything. You have to look at the options available to you, and find what looks best in your situation. Try to remain flexible, and be prepared for anything. Treasure the time you have left, and use the time to prepare yourself, your family, your community and your nation.
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Web site readership has been greatly increasing in the last couple of months. I thank all of you for continuing to come back, and I appreciate the opportunity to present the information on this web site as a public service.
I'm still managing to keep up with all e-mail questions sent to me, though it sometimes takes a few days for me to get back with a response, depending on volume of e-mail. So if you have a question, by all means send me an e-mail message, or use the "Comment" link at the top of this page.
If you want to have a more open debate, you can do so in the "Objections to Generational Dynamics" thread of the
Fourth Turning forum. That thread tends to get somewhat theoretical
and esoteric sometimes (when there isn't a flame war going on), but
it's still a good place to ask any kind of question on this subject
that interests you.
(3-Mar-07)
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I hope taxpayers didn't pay for this nonsense.
According to the study, today's college students are more narcissistic and self-centered than their predecessors. This conclusion is based on the responses of 16,475 college students nationwide who completed an evaluation called the Narcissistic Personality Inventory between 1982 and 2006.
The new report follows a study released by UCLA last month which found that nearly three-quarters of the freshmen it surveyed thought it was important to be "very well-off financially." That compared with 62.5 percent who said the same in 1980 and 42 percent in 1966.
According to the new study's author, Professor Jean Twenge of San Diego State University, "We need to stop endlessly repeating 'You're special' and having children repeat that back. Kids are self-centered enough already."
Can you believe this garbage? This woman obviously doesn't like kids -- let's hope she doesn't have any.
Today's college-age kids are great. (This includes my own college-age kid, by the way. It also includes other college-age kids that I've met.) What I've learned in the past few years is that when someone complains about college-age kids being too self-centered, it's because they're pissed because college-age kids don't support the Boomer political issues.
First, college students don't support the "antiwar movement," which is hugely upsetting to the Boomer left in Washington, since they can't seem to muster more than a few hundred of them to attend their political events in Washington.
Second, young college-educated women want, more and more, to stay at home and take care of the kids, rather than work while the kids are in day care. Words can't describe how much this has freaked out the feminists.
These two "problems" particularly have convinced many Boomers and Generation-Xers that there's something wrong with today's college-age students.
Actually, what happened is that today's college-age children grew up during a "generational Unraveling era," the 1980s and 1990s, a time when there were almost no societal rules or structure. During this time, feminist-led programs deprived children of their fathers altogether, or for all but at most a few hours per month. Living with their single mothers, children were exposed much more, on a statistical basis, to child abuse, starvation, and sexual abuse by their mothers and mothers' boyfriends. The worst victims have been black children, who grew up in homes without their fathers over 70% of the time, though the nationwide figure of 33% is bad enough.
Boys were particularly victimized during this period, as I frequently saw in dealing with female teachers and social workers when my son was growing up. These "professional" women uniformly knew NOTHING about boys -- and I mean absolutely NOTHING - their ignorance was truly abysmal -- and they treated boys as if they were simply defective girls.
The result of this upbringing can be seen in another conclusion of the study, that college-age children are "more likely to have romantic relationships that are short-lived, at risk for infidelity, lack emotional warmth, and to exhibit game-playing, dishonesty, and over-controlling and violent behaviors." They're only doing what they saw their mothers and fathers doing.
The chaotic family life (or lack of family life) has resulted in what Jean Twenge is now calling narcissism. When she says, "We need to stop endlessly repeating 'You're special' and having children repeat that back. Kids are self-centered enough already," this reaction to chaotic single-parent upraising must be what she's referring to.
This current generation of college-age kids, sometimes called "Generation Y" or "Generation Next," sometimes called "Millennials," follow a particular generational archetype that has occurred in every society throughout history. In their book The Fourth Turning, historians William Strauss and Neil Howe identified this as the "civic generation" and also the "Hero generation."
They turn into hard-working "civics," because they see how incompetent their parents (Boomers and Gen-Xers in our case) are at running the country and the world, and they're sick of the fact that all their parents do is argue with each other, both at home and in government and society. They become the generation that's determined to actual DO something, instead of just complaining about other people.
They turn into "Heroes," because they lead the nation into the next crisis war, which they embrace bravely and selflessly, with little or no fear of death. The last Hero generation were the G.I.'s that fought and beat the Nazis. The new Millennial generation is destined to become our next "Greatest Generation" that will fight the Clash of Civilizations World War. After the war is over, they'll return to their "civic" roots and rebuild the country and the world, setting up new institutions designed to guarantee that their children and grandchildren will never have to fight any such war again, just as the G.I. generation did.
What are the psychological characteristics of the new Millennial generation? Well, since Ms. Twenge has found that they score so high on a narcissistic scale, I was curious to see the questions that they were answering.
The following is the list of questions from the standard 40 question subset of 54-question Narcissistic Personality Inventory:
2. I have a natural talent for influencing people.
3. Modesty doesn't become me.
5. I would do almost anything on a dare.
7. I know that I am good because everybody keeps telling me so.
8. If I ruled the world it would be a much better place.
10. I can usually talk my way out of anything.
12. I like to be the center of attention.
13. I will be a success.
14. I think I am a special person.
15. I see myself as a good leader.
16. I am assertive.
17. I like to have authority over other people.
19. I find it easy to manipulate people.
20. 1 insist upon getting the respect that is due me.
21. I like to display my body.
22. I can read people like a book.
23. I like to take responsibility for making decisions.
25. I want to amount to something in the eyes of the world.
26. I like to look at my body.
28. I am apt to show off if I get the chance.
29. I always know what I am doing.
30. I rarely depend on anyone else to get things done.
32. Everybody likes to hear my stories.
34. I expect a great deal from other people.
35. I will never be satisfied until I get all that I deserve.
36. I like to be complimented.
38. I have a strong will to power.
39. 1 like to start new fads and fashions.
42. I like to look at myself in the mirror.
44. I really like to be the center of attention.
45. 1 can live my life in any way I want to.
46. People always seem to recognize my authority.
47. I would prefer to be a leader.
48. I am going to be a great person.
49. I can make anybody believe anything I want them to.
50. I am a born leader.
51. I wish somebody would someday write my biography.
52. I get upset when people don't notice how I look when I
go out in public.
53. I am more capable than other people.
54. I am an extraordinary person.
You know, I read through the above list, and what I see are exactly the characteristics that are going to be needed by the new "Greatest Generation."
From the point of view of Generational Dynamics, we're headed for a new Clash of Civilizations World War with absolute certainty.
The good news is that the people who will be fighting to protect our
nation will be from the generation with the narcissistic
characteristics indicated by the list of questions above. The bad
news, of course, is that China and other nations that we'll be
fighting will be from a generation with the same characteristics.
(2-Mar-07)
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And China changes the official transcript to hide what he really said.
At a press conference on Wednesday, Qin Gang, China's Foreign Minister (like our Secretary of State), gave a press conference at which he was asked about Vice President Dick Cheney's remarks last week, in Australia, criticizing China's military buildup.
Qin was also responding to some remarks from Japan: Shoichi Nakagawa, policy chief of the ruling Liberal Democratic Party, echoed Cheney's remarks in questioning China's future intentions with its military:
Nakagawa's point is this: China says repeatedly that Taiwan is part of China, and if there is any hint in Taiwan of a move toward independence, then China will take military action to forcibly annex Taiwan. Furthermore, China's military buildup has particularly targeted force against Taiwan. Therefore, if anything "goes awry" in Taiwan at any time, then China will annex Taiwan by force, and then China will move on to annex Japan, according to Japanese minister Nakagawa.
There was a conciliatory response from Japanese Prime Minister Abe Shinzo:
Har, har.
In passing, it's worthy of note that Abe Shinzo has been plummeting in the polls. He was looking good when he was first elected in September, but now his government apparently has no clear objective, economic and unemployment problems are mounting, and two top officials have been forced to resign over financial scandals. One reason for the "chaos" is clear, according to Newsweek: He's surrounded by young and inexperienced advisers who don't know what the hell they're doing. They're from the the same young South Korean generation of advisers who are over their head in dealing with the nuances of the North Korean nuclear problem.
Thus, Japan joins the list of countries that are increasingly becoming paralyzed and dysfunctional -- including the U.S., UK, Israel, all of the EU, China, South Korea, and now Japan.
 |
Returning now to Qin Gang's press conference in China, here's how China Daily described the Qin's response to the "China threat" question:
China adheres to the path of peaceful development and is "an important force in the maintenance of peace and stability in the world and the region", Foreign Ministry spokesman Qin Gang told a regular press briefing yesterday. ...
Rejecting Cheney's criticism, Qin said China's constructive role in the Six-Party Talks to make the Korean Peninsula nuclear free is clear evidence of China's commitment to world peace.
He reiterated China's stance against weapons of mass destruction and stressed that the country has been promoting the peaceful use of outer space.
Qin also rejected charges made by Japanese politician Shoichi Nakagawa on Monday against China's military spending. ..
While reiterating that the Taiwan question is China's internal affair, Qin said China is a big sovereign country with a long borderline and coastline, and thus its maintenance of a certain military force is "beyond reproach".
That's nice. Now let's take a look at the official transcript, from China, of the press conference:
A: As for your first question, it must be pointed out that the Taiwan question is China's internal affairs which brooks no interference from any foreign or outside forces. Japan has made explicit commitment on the Taiwan question in the three political documents between China and Japan. We hope Japan can adhere to its commitment and ensure healthy and normal development of our bilateral relations.
Regarding the so-called China's military build-up and intransparency of military expenditure in his statement, we have actually made clear our position and proposition on many occasions. Japan is clear about it. As a sovereign state with a long border on land and the sea, it is beyond questioning for China to maintain a certain level of national defense strengthen just to safeguard its own sovereignty and territorial integrity as well as national unity. Whereas Japan, a country with 1/25 of China's size and with 1/10 of China's population, has maintained a huge military expenditure. China's military expenditure is only 67% that of Japan and only 7% that of Japan in per capita terms. A country with a much smaller population and size than China keeps such a titanic military expenditure and constantly cries out "China Threat". What is its real intention? Isn't it strange? Japan has always asked China to increase transparency. So we also ask Japan to do the same and tell us their real intention is. Can they explain the real motives behind series of their military moves such as trying to include China's Taiwan into Japan's Contingency Plan and the above-mentioned remarks on Taiwan?
I will reiterate that China is a peace-loving country committed to the road of peaceful development. China's development is conducive to regional and world peace and stability. We will not threaten any one, nor do we hope or allow to be blackmailed or threatened by others.
As for your second question, China firmly pursues a path of peaceful development and is an important force to safeguard world peace and promote common development. ...
We are ready to work with the US to implement the important consensus reached by the two heads of state, strengthen dialogues, exchanges and cooperation in all fields and properly address differences, so as to promote continuous, healthy and stable development of China-US constructive and cooperative relations."
As usual, this is a standard boilerplate response to this type of question, making the following points implicitly or explicitly:
Finally, let's take a look at the report by a Reuters reporter who was actually present at the press conference:
China maintains a reasonable national defense strength to protect our sovereignty, security, territorial integrity and national unity. Not for expansion, and certainly not for wars of aggression abroad."
This is a lot nastier and harsher than the official transcript. It reminds one that Hitler said one thing to the British Prime Minister ("peace in our time") at the same time that he was secretly meeting with Mussolini to make specific plans for war with Britain.
At the very least, it shows that the Chinese government won't hesitate to lie to downplay their intentions.
However, I wanted to point out this subterfuge for another reason: It's clear that Qin was expressing a great deal of personal anger at the U.S. for questioning China's military buildup. This is not the first time we've noticed this.
There was the 2005 warning given by top-level Chinese army officer General Zhu Chenghu if America interfered with Taiwan: "If the Americans are determined to interfere [then] we will be determined to respond. We . . . will prepare ourselves for the destruction of all of the cities east of Xian [a city in central China]. Of course the Americans will have to be prepared that hundreds . . . of cities will be destroyed by the Chinese."
And just this past August, Sha Zukang, the Chinese ambassador to the U.N., furiously and harshly threatened the U.S. over Taiwan. He was literally screaming in an interview with a BBC reporter:
It's not a matter of how big Taiwan is, but for China, one INCH of the territory is more valuable than the LIVES of our people."
[With regard to the U.S.'s constant criticism of China's rapid militarization:] It's better for the U.S. to shut up, keep quiet. That's much, much better. China's population is 6 times or 5 times the United States. Why blame China? No. forget it. It's high time to shut up. It's a nation's sovereign right to do what is good for them. But don't tell us what's good for China. Thank you very much."
This intense fury is similar to Senator Ted Kennedy screaming angrily at the top of his lungs two weeks ago, and NBC reporter Chris Matthews was screaming hysterically a month earlier. As I recently discussed, this is caused by "cognitive dissonance," as Boomers' fundamental beliefs, developed when they were college kids burning their draft cards while their girlfriends were burning their bras, are now being challenged by intractable events in Iraq. The result is hysteria, paralysis, and a collection of idiotic proposals emanating from pundits and Congress.
So now we see the same thing happening in Japan and China. It's a fair question to ask, what is the source of the cognitive dissonance in their cases? What are their fundamental decades old beliefs that are being challenged by current events?
In the case of Japan, it's fairly obvious. For decades, they believed that their pacifist policies, combined with an umbrella of protection from the United States, would protect them from another war like World War II.
In the case of China, it's more complicated. I can't give you detailed sources on this, but it's the impression I've gained from reading hundreds of articles about China in the last few years:
These are the fundamental, axiomatic, core beliefs of China's post-war generation (corresponding to our Boomers). They have spent their lives looking ahead to a future where they would be the peer of the United States, perhaps replacing the Soviets as the world's second superpower, well-respected, and in control of their own boundaries, including the island across the Straits of Taiwan.
These fundamental beliefs are being challenged by current events in two ways:
So when Sha Zukang, the Chinese ambassador, was screaming furiously, and said, "one INCH of the territory is more valuable than the LIVES of our people," and "It's high time to shut up. It's a nation's sovereign right to do what is good for them. But don't tell us what's good for China," he was reacting with total disbelief that America could possibly be pursuing its course. The screaming was an expression of desperation.
Nobody wants a war, not the Chinese, not the Japanese, not the Americans, especially the kind of war we're headed for. And yet wars happen all the time. That's the contradiction that most people don't understand. Japan and America are headed for war with China because none of us has any choice. China MUST annex Taiwan. America MUST defend Taiwan.
From the point of view of Generational Dynamics, a war with China is
coming with absolute certainty, and probably sooner rather than
later. It will be a major component of the coming "clash of
civilizations" world war.
(1-Mar-07)
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Did it all happen because Alan Greenspan opened his mouth?
I really thought that analysts and pundits would be more cautious on Wednesday. But no, they were giggling and giddy all day long. Tuesday was just an aberration, they said. "It had to happen some time, but look what happened today (giggle)."
Well, on Wednesday the New York markets recovered about 1/8 of what they lost on Tuesday.
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The pundits gave a lot of the credit to the new Fed Chairman, Ben Bernanke, who testified to Congress in the morning. He was very soooooooooooothing. He calmed things down. "Don't worry, people," he seemed to say. "We're watching it verrrry closely, and nothing bad is going to happen."
The pundits knew who the real villain was. "He was the cause of all our problems yesterday," said a few pundits.
Who was this evil man? Why, none other than former Fed Chairman Alan Greenspan, who had, coincidentally, said on Monday that there might be a recession later this year. People say things like that all the time, and Greenspan came close to predicting a stock market crash several times when he was still Fed Chairman, but that didn't matter then.
But fear not. Greenspan has just recanted, and now he says that a recession is "possible, but not probable." Phewwww.
You know, this panic business is a funny thing. There have been various regional stock market collapses in countries around the world, with no great ripple on Wall Street.
This Shanghai index isn't even all that important in China, so why should it be so important on Wall Street? There's no answer to that question except timing: Investors are ready to panic.
The markets are very dangerous right now, because while investors are giggling, they're also scared to death. They don't know what's going on, the ride is spinning faster and faster, they're getting dizzier and dizzier. They're afraid of what will happen if they stay on the ride, but they're afraid they'll look like fools if they get off the ride.
Be very cautious for the next few days and weeks. A generational panic
and meltdown has to come soon, for reasons I've been giving for
years.
(1-Mar-07)
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